<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1999
REGISTRATION NO. 333-86841
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 6 TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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RETEK INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 7372 51-0392671
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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MIDWEST PLAZA, 801 NICOLLET MALL, 11TH FLOOR
MINNEAPOLIS, MN 55402
(612) 630-5700
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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JOHN BUCHANAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
RETEK INC.
MIDWEST PLAZA, 801 NICOLLET MALL
11TH FLOOR, MINNEAPOLIS, MN 55402
(612) 630-5700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
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CHRISTOPHER D. DILLON JOHN A. FORE
SHEARMAN & STERLING KATHLEEN B. BLOCH
1550 EL CAMINO REAL, SUITE 100 WILSON SONSINI GOODRICH & ROSATI
MENLO PARK, CA 94025 PROFESSIONAL CORPORATION
(650) 330-2200 650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 1, 1999
5,000,000 Shares
RETEKLOGO
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $12.00 and $14.00 per share. We have applied to list our common stock on
The Nasdaq Stock Market's National Market under the symbol "RETK."
The underwriters have an option to purchase a maximum of 750,000 additional
shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 8.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS RETEK
----------------- ----------------- -----------------
Per Share........................................... $ $ $
Total............................................... $ $ $
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Delivery of the shares of common stock will be made on or about ,
1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
The date of this prospectus is , 1999.
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[Insider Front Cover]
[The following text center justified appears along the top of the page:]
Retail Business-to-Business
[The Retek logo appears in the center of the page. Arranged around the Retek
logo in a circle are seven individual graphics. Each graphic represents a
different sector of the global retail supply chain. A short line points from
each of these graphics to the Retek logo that appears in the center of the page.
Centered below each graphic is a single word that identifies the sector of the
global retail supply chain represented by the graphic. From the top of the
circle, in clockwise order, the following words appear underneath the graphics:]
Retailers, Suppliers, Distributors, Consolidators, Manufacturers, Banks,
Shippers
[The following text center justified appears along the bottom of the page:]
on the Internet
[Gatefold]
[The following text left justified appears at the top of the left side of the
page:]
Retek offers:
- - Web-based business-to-business software solutions for retailers and their
trading partners
- - retail.com (TM) - an electronic commerce network for the global retail supply
chain
- - Web services to support critical business-to-business processes
- - Technologies that predict customer demand and behavior
[The Retek logo appears on the left side near the middle of the page with the
words "Retek ENABLED" directly underneath]
[The Retek logo appears near the center of the page. Arranged around the Retek
logo in a circle are seven individual graphics. Each graphic represents a
different sector of the global retail supply chain. A short arrow points from
the Retek logo near the center of the page to each of the seven graphics.
Centered below each graphic is a single word that identifies the sector of the
global retail supply chain represented by the graphic. From the top of the
circle, in clockwise order, the following words appear underneath the graphics:]
Retailers, Suppliers, Distributors, Consolidators, Manufacturers, Banks,
Shippers
[The following text left justified appears in a vertical column on the middle of
the right side of the page:]
Advantages of Retek:
- - Collaborative: Exploits the real time, collaborative power of the web through
retail.com to reduce supply chain inefficiencies and costs while maximizing
supply chain sensitivity to the changing demands of consumers
- - Predictive: Employs advanced technologies to predict high value patterns in
the vast volume of business-to-business and business-to-consumer transactions
- - Scalable: Able to support the mission-critical operations of some of the
world's largest retailers
- - Web-based: Full web architecture promotes ease of use and rapid deployment
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[The following text left justified appears towards the bottom right corner of
the page:]
The retail.com Web-Services Model:
- -Lower cost of ownership: No operations staff, no hardware costs, no maintenance
costs
- -Immediate and global access: Implementation time measured in minutes, rather
than months, accessible from any desktop with web access
- -Immediate communications: Real time, interactive communications across the
entire retail supply chain
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY............... 3
RISK FACTORS..................... 8
SPECIAL NOTE REGARDING
FORWARD-LOOKING INFORMATION.... 19
OUR SEPARATION FROM HNC.......... 20
USE OF PROCEEDS.................. 22
DIVIDEND POLICY.................. 22
CAPITALIZATION................... 23
DILUTION......................... 25
SELECTED COMBINED FINANCIAL
DATA........................... 26
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...... 27
BUSINESS......................... 41
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PAGE
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MANAGEMENT....................... 52
CERTAIN TRANSACTIONS............. 66
PRINCIPAL STOCKHOLDER............ 74
DESCRIPTION OF CAPITAL STOCK..... 76
SHARES ELIGIBLE FOR FUTURE
SALE........................... 81
MATERIAL UNITED STATES FEDERAL
TAX CONSEQUENCES TO NON-UNITED
STATES HOLDERS................. 83
UNDERWRITING..................... 86
NOTICE TO CANADIAN RESIDENTS..... 88
LEGAL MATTERS.................... 89
EXPERTS.......................... 89
WHERE TO FIND MORE INFORMATION... 90
INDEX TO FINANCIAL STATEMENTS.... F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere is this prospectus.
This summary is not complete and does not contain all the information you should
consider before buying shares in this offering. You should carefully read the
entire prospectus and the risk factors beginning on page 8.
Unless otherwise stated, information in this prospectus assumes that the
underwriters' over-allotment option to purchase an additional 750,000 shares of
common stock at the initial offering price is not exercised.
Unless otherwise stated, the terms "we" or "us" used in this prospectus
refer to Retek Inc. Immediately prior to the completion of this offering, our
business, which we formerly conducted as Retek Logistics, Inc., will be combined
with the business activities of Retek Information Systems, Inc. In this
prospectus, except where stated, information is presented as if this combination
has occurred.
RETEK INC.
We provide web-based, business-to-business software solutions for retailers
and their trading partners. Our software solutions enable retailers to use the
Internet to communicate and collaborate efficiently with the suppliers,
distributors, wholesalers, logistics providers, brokers, transportation
companies, consolidators and manufacturers that make up the global retail supply
chain. Our solutions are rapidly deployable, highly scalable, retail industry
focused and incorporate technology that predicts customer demand and behavior.
We seek to enhance the ability of retailers to interact with their supply chain
by introducing Retail.com, which we believe is the first electronic commerce
network providing collaborative business-to-business software solutions to the
retail industry.
We believe that a market opportunity exists to provide retailers with a
business-to-business software solution that is web-based, collaborative and
designed specifically for the retail industry. We believe, based on industry
sources, that worldwide retailer-to-customer sales exceeded $6.5 trillion in
1997. We estimate that the market for business-to-business commerce is even
larger than retailer-to-customers sales, and involves, according to industry
sources, over three million retail, wholesale and supplier organizations
operating in the global marketplace. We believe the Internet is beginning to
change the way this market operates. Not only does the Internet provide a new
distribution channel for conducting commerce with customers, it provides an even
larger opportunity for retail businesses to communicate and transact commerce
with their supply chain. According to Forrester Research, business-to-business
electronic commerce is expected to grow from $43 billion in 1998 to $1.3
trillion in 2003. We believe, based on industry sources, that the market for
software solutions for business-to-business electronic commerce will grow from
$171 million in 1998 to $3.1 billion in 2002.
We intend to be the leading provider of web-based, business-to-business
software solutions for retailers and their trading partners. As the retail
supply chain evolves into an electronic network, we seek to further enable
retailers to better manage, organize and drive efficiencies through this
network. Key elements of our strategy include:
- Extending our web-based, business-to-business collaborative software
solutions, principally through the introduction of our Retail.com
network;
- Introducing our existing customers to a broader offering of our software
solutions;
- Continuing to leverage our expertise in providing solutions to
retailers;
- Expanding our relationships with partners who implement our software or
make our software available to users; and
- Extending our technological and product leadership by enhancing our
software solutions' core functionality and the features that analyze and
predict customer demand and behavior.
3
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We are currently a wholly owned subsidiary of HNC Software Inc., a public
company that develops and markets software solutions for businesses in financial
and other industries. Immediately prior to the completion of this offering, our
business will combine the business activities of Retek Information Systems, Inc.
and Retek Inc., formerly Retek Logistics, Inc. Retek Information Systems
develops and markets web-based business-to-business software solutions for
retailers. Founded in 1995, Retek Information Systems was acquired by HNC in
1996. Retek Logistics, founded in 1985, develops warehouse management software
solutions. HNC acquired Retek Logistics in 1998. On September 9, 1999, Retek
Logistics was reincorporated as a Delaware corporation and renamed "Retek Inc."
In connection with the separation of our business from HNC, HNC will contribute
all of the outstanding capital stock of Retek Information Systems to Retek Inc.
Our principal executive offices are located at Midwest Plaza, 801 Nicollet
Mall, 11th Floor, Minneapolis, Minnesota 55402 and our telephone number is (612)
630-5700. Our web site is http://www.retek.com. The information on the web site
is not part of this prospectus.
"Retek" is a trademark of Retek. All other trademarks or service marks
appearing in this prospectus are trademarks or service marks of the respective
companies that use them.
4
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OUR RELATIONSHIP WITH HNC SOFTWARE INC.
After the completion of this offering, HNC will own approximately 88.9% of
the total number of outstanding shares of our common stock, or approximately
87.4% if the underwriters' over-allotment option is exercised in full. HNC has
informed us that, after the completion of this offering, it is HNC's current
intention to distribute pro rata to its stockholders, as a dividend, all of the
shares of our common stock HNC will own after this offering, subject to the
satisfaction and fulfillment of several conditions, including the approval of
the HNC board of directors (this dividend will be referred to as the
distribution in this prospectus). HNC has the sole discretion to determine
whether it will carry out the distribution, and if the distribution is carried
out, the timing, structure and terms of the distribution. HNC is not obligated
to carry out the distribution. We refer you to "Our Separation from HNC"
beginning on page 20 for additional information relating to the conditions to
the distribution and to "Risk Factors -- Risks Related to Our Separation from
HNC" beginning on page 14 for additional information on the risks related to the
distribution.
If HNC has received a written ruling from the Internal Revenue Service that
the distribution qualifies for tax-free treatment under Section 355 of the
Internal Revenue Code, and HNC fails to complete the distribution within 120
days after the first date that HNC is eligible to effect the tax-free
distribution, then John Buchanan, our chairman and chief executive officer, and
three other executive officers to be chosen by Mr. Buchanan, will receive a
12-month credit to the vesting schedule of their Retek stock options. In
addition, if at the time of this accelerated vesting, Mr. Buchanan and the three
other chosen executives execute two-year non-compete agreements with Retek,
their vesting schedules will be credited by an additional 12 months.
Furthermore, Mr. Buchanan will receive the same option vesting credit in the
event that Mr. Buchanan's employment with us is terminated without cause prior
to the distribution. For purposes of this arrangement, "cause" is defined as
intentional gross misconduct by Mr. Buchanan in the performance of his duties
that results in material injury to us.
We will enter into agreements with HNC that provide for the separation of
our business from HNC. These agreements will generally provide for the transfer
from HNC to us of assets and intellectual property used in our business, and the
assumption by us of liabilities relating to our business. If HNC carries out the
tax-free distribution, these agreements will restrict our ability to take
specified actions that would cause the distribution to be taxable to HNC or its
stockholders. For more information regarding these agreements, see "Certain
Transactions" beginning on page 66.
Our agreements with HNC will also govern various interim and ongoing
relationships. All of the agreements providing for our separation from HNC will
be made in the context of a parent-subsidiary relationship, will be negotiated
in the overall context of our separation from HNC and will not be conditioned on
the distribution. The terms of these agreements may be more or less favorable to
us than if they had been negotiated with unaffiliated third parties.
5
<PAGE> 9
THE OFFERING
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Common stock offered in this offering........ 5,000,000 shares
Common stock outstanding after this
offering:.................................. 45,000,000 shares
Use of proceeds from this offering........... For working capital and general corporate
purposes, including repayment of intercompany
debt to HNC and the payment of the notes
which were issued in connection with the
purchase of all of the outstanding capital
stock of WebTrak Limited. For further
information regarding our use of the proceeds
from this offering see "Use of Proceeds" on
page 22.
Proposed Nasdaq National Market Symbol....... "RETK"
</TABLE>
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Common stock outstanding after this offering is based on shares outstanding
as of September 30, 1999:
- assuming the filing of the certificate of amendment to our certificate
of incorporation to increase the number of authorized shares of common
stock to 150,000,000 shares and the number of authorized shares of
preferred stock to 5,000,000 shares;
- assuming the completion of a 40,000 for 1 stock split of our common
stock which will occur prior to the completion of this offering;
- excluding the exercise of the underwriters' over-allotment option;
- excluding shares of common stock issuable upon exercise of options
outstanding at an exercise price of $10.00 per share, none of which are
exercisable; and
- excluding shares of common stock issuable upon conversion of a note
which was issued in connection with the purchase of all of the
outstanding capital stock of WebTrak. For further information regarding
the acquisition of WebTrak, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" beginning on page 36.
6
<PAGE> 10
SUMMARY COMBINED FINANCIAL DATA
The summary combined financial data presented below should be read in
conjunction with our combined financial statements and the related notes,
beginning on page F-1, "Capitalization" on page 23, "Selected Combined Financial
Data" beginning on page 26, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 27.
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NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
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1996 1997 1998 1998 1999
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(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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COMBINED STATEMENT OF INCOME DATA:
Total revenue............................... $13,433 $30,923 $55,033 $39,829 $57,759
Gross profit................................ 9,554 27,278 41,181 29,788 42,038
Operating income............................ 1,418 6,619 8,088 5,194 9,485
Net income.................................. 2,233 3,476 3,878 2,171 5,093
Pro forma unaudited basic net income per
common share(1).......................... $ 0.10 $ 0.13
Pro forma unaudited diluted net income per
common share(1).......................... $ 0.09 $ 0.12
Shares used in computing pro forma unaudited
basic net income per common share(1)..... 40,000 40,000
Shares used in computing pro forma unaudited
diluted net income per common share(1)... 41,635 41,635
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<CAPTION>
SEPTEMBER 30, 1999
----------------------------
ACTUAL AS ADJUSTED(2)
----------- --------------
(UNAUDITED)
(IN THOUSANDS)
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COMBINED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 499 $ 45,044
Working capital........................................... 17,800 71,850
Total assets.............................................. 60,066 104,611
Payable to HNC Software Inc............................... 9,505 --
Total stockholder's equity(3)............................. 41,080 95,130
</TABLE>
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(1) For an explanation of the determination of the number of shares used in
computing pro forma unaudited basic and diluted net income per common share, see
Note 1 of the notes to our combined financial statements beginning on page F-7.
(2) The as adjusted amounts reflect the receipt and application of the net
proceeds from the sale of 5,000,000 shares of our common stock at an assumed
initial offering price of $12.00, after deducting the estimated underwriting
discounts and offering expenses payable by us of $5,950,000 and repayment of the
amount payable to HNC of $9,505,000. The as adjusted amounts do not reflect our
acquisition of all the outstanding capital stock of WebTrak Limited on October
29, 1999 for $8.0 million, as we have not yet determined the purchase price
allocation of the assets acquired and the liabilities assumed.
(3) Upon the expected contribution by HNC of all the outstanding stock of
Retek Information Systems, Inc. to us and the expected 40,000 for 1 stock split
of our common stock, total stockholder's equity will remain the same.
7
<PAGE> 11
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and all other information
contained in this prospectus before purchasing our common stock. Any of the
following risks could materially harm our business, operating results and
financial condition. Additional risks and uncertainties not currently known to
us or that we currently consider immaterial could also harm our business,
operating results and financial condition. You could lose all or part of your
investment as a result of these risks.
RISK RELATED TO OUR BUSINESS AND INDUSTRY
IF WE DO NOT RESPOND ADEQUATELY TO OUR INDUSTRY'S RAPID PACE OF CHANGE, SALES OF
OUR PRODUCTS MAY DECLINE.
If we are unable to develop new software solutions or enhancements to our
existing products on a timely and cost-effective basis, or if new products or
enhancements do not achieve market acceptance, our sales may decline. The life
cycles of our products are difficult to predict because the business-to-business
electronic commerce market for our products is new and emerging and is
characterized by rapid technological change and changing customer needs. The
introduction of products employing new technologies could render our existing
products or services obsolete and unmarketable.
In developing new products and services, we may:
- fail to respond to technological changes in a timely or cost-effective
manner;
- encounter products, capabilities or technologies developed by others
that render our products and services obsolete or noncompetitive or that
shorten the life cycles of our existing products and services;
- experience difficulties that could delay or prevent the successful
development, introduction and marketing of these new products and
services; or
- fail to achieve market acceptance of our products and services.
THE LENGTHY SALES CYCLE FOR OUR PRODUCTS MAKES OUR REVENUES SUSCEPTIBLE TO
FLUCTUATIONS.
Delay or failure to complete sales in a particular quarter or year would
reduce our quarterly and annual revenue. Implementation of our software is
complex, time consuming and expensive. In many cases, our customers must change
established business practices or conduct business in new ways to accommodate
installation and use of our software. They must also consider a wide range of
other issues before committing to purchase our products, including product
benefits, competitive alternatives, ease of installation, ability to work with
existing computer systems, ability to support a large user base and the scope of
functions our products provide. We believe that the purchase of our products is
often discretionary and generally involves a significant commitment of capital
and other resources by a customer. As a result of these factors, our sales
cycles can be lengthy, typically ranging from four to 12 months. Consequently,
sales of our software solutions that are anticipated to occur in a given quarter
or year may be accelerated or delayed, potentially resulting in significant
variations in expected quarterly or annual revenue.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS COULD LIKELY CAUSE OUR STOCK
PRICE TO DECLINE.
Our quarterly operating results have fluctuated in the past and are
expected to continue to fluctuate in the future. If our quarterly operating
results fail to meet analysts' expectations, the trading price of our common
stock could decline. In addition, significant fluctuations in our quarterly
operating results may harm our business operations by making it difficult to
implement our budget and business plan. The
8
<PAGE> 12
factors, many of which are outside our control, which could cause our operating
results to fluctuate include:
- the size and timing of customer orders, which can be affected by
customer budgeting and purchasing cycles;
- the demand for and market acceptance of our software solutions;
- our competitors' announcements or introductions of new software
solutions, services or technological innovations;
- our ability to develop, introduce and market new products on a timely
basis;
- customer deferral of material orders in anticipation of new releases or
new product introductions;
- our success in expanding our sales and marketing programs;
- increased sales of Oracle Retail(TM) in our second fiscal quarter due to
seasonally greater sales by Oracle near its fiscal year-end in May;
- technological changes or problems in computer systems; and
- general economic conditions which may affect our customers' capital
investment levels.
In addition, we will incur compensation expense in connection with our
grant of options under our 1999 Equity Incentive Plan. This expense will be
amortized over the vesting period of these granted options, which is generally
four years, resulting in lower quarterly income. For a discussion of this
compensation expense, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Results of Operations"
beginning on page 34.
Our quarterly expense levels are relatively fixed and are based, in part,
on expectations as to future revenue. As a result, if revenue levels fall below
our expectations, our net income will decrease because only a small portion of
our expenses vary with our revenue. For a more detailed description of our
quarterly results, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 27.
AS WE ENTER INTO A NEW TYPE OF LICENSE AGREEMENT, WE WILL RECOGNIZE
REVENUES OVER A PERIOD OF TIME AND WILL HAVE SIGNIFICANTLY LESS REVENUE FOR
SEVERAL QUARTERS.
At this time, we generally license our products to customers on a perpetual
basis, and we recognize revenue upon delivery of the products. Starting in the
fourth quarter of 1999, we intend to enter into software licensing agreements
with revised terms for the majority of our software products sold after this
date. Under these agreements, we will provide technical advisory services after
the delivery of our products to help our customers exploit the full value and
functionality of our products. Revenue from the sale of software licenses and
technical advisory services under these agreements will be recognized as the
services are performed over the contract period, which we expect will generally
be 12 to 24 months, as determined by our customers' objectives. As we begin to
recognize license and service revenues over a period of time, rather than upon
the delivery of our products, we will recognize significantly less revenue and
our associated margins will be lower for several quarters, as compared to
previous quarters, and we will incur operating losses during these periods. For
further information regarding our new software licensing agreements, we refer
you to "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Overview" beginning on page 27.
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OUR RETAIL.COM NETWORK WAS RECENTLY INTRODUCED AND IS STILL AT AN EARLY STAGE OF
DEVELOPMENT. WE HAVE NOT ESTABLISHED COMPETITIVE AND PROFITABLE PRICING FOR OUR
RETAIL.COM NETWORK.
We began operation of our Retail.com network on September 26, 1999. We
incurred, and may continue to incur, significant infrastructure costs in
establishing this network. Broad and timely acceptance of our Retail.com network
is subject to a number of significant risks. These risks include:
- our need to provide value-enhancing software solutions and services on
our Retail.com network to achieve widespread commercial acceptance of
our network;
- whether our network will be able to support large numbers of retailers
and the members of their supply chain; and
- our need to significantly expand our internal resources and incur
associated expenses to support planned growth of our Retail.com network.
We have established a subscription pricing model for the WebTrak Critical
Path software solutions provided on our Retail.com network, whereby members pay
an annual fee based on the number of the member's employees who will have access
to the network. As additional services are added to the Retail.com network, we
will need to establish a pricing model for these new services. If the pricing
models for the Retail.com network fail to be competitive and profitable or if
they are not acceptable to our customers, our network will not be commercially
successful, which could harm our revenue and business. See "Business -- Retek
Products -- Business-to-Business Collaborative Solution" on page 45 for more
information regarding the Retail.com network.
OUR RELATIONSHIP WITH ORACLE IS IMPORTANT IN GENERATING SALES OF OUR PRODUCTS.
IF OUR RELATIONSHIP WITH ORACLE ENDS OR IF ORACLE DOES NOT DEVOTE ADEQUATE
RESOURCES TO PROMOTE AND SELL ORACLE RETAIL(TM) OR IF SALES OF ORACLE RETAIL(TM)
DECLINE, OUR REVENUES WILL DECLINE.
We have worked with Oracle to establish Oracle Retail(TM), a software
solution which combines our products with Oracle's financial applications. In
addition to Oracle's general sales force, Oracle has dedicated a sales team of
approximately 30 sales professionals who sell and market Oracle Retail(TM)
worldwide. Revenue generated from sales of Oracle Retail(TM) accounted for
approximately 25% of our revenue in the nine months ended September 30, 1999.
Both we and Oracle currently have the right to terminate the agreement governing
the sales and marketing of Oracle Retail. In addition, this agreement is
currently being renegotiated. If Oracle were to exercise its right to terminate,
or if we fail to negotiate a new agreement on acceptable terms, our revenue will
decline and our business will be harmed. In addition, Oracle is not obligated to
sell and market Oracle Retail(TM) and, in the future, may decide to stop selling
Oracle Retail(TM) or promote products that compete with Oracle Retail(TM) or our
other products.
WE EXPECT TO SIGNIFICANTLY INCREASE OUR OPERATING EXPENSES, WHICH WILL IMPACT
OUR ABILITY TO REMAIN PROFITABLE.
We intend to significantly increase our operating expenses as we:
- increase our research and development activities;
- increase our services activities;
- develop and build our Retail.com network;
- expand our distribution channels;
- increase our sales and marketing activities, including expanding our
direct sales force;
- build our internal information technology system; and
- operate as an independent public company.
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We will incur expenses before we generate any revenue from this increase in
spending. If we do not significantly increase revenue from these efforts, our
business and operating results could be seriously harmed.
COMPETITIVE PRESSURES COULD REDUCE OUR MARKET SHARE OR REQUIRE US TO REDUCE OUR
PRICES, WHICH WOULD REDUCE OUR REVENUE AND/OR OPERATING MARGINS.
The market for our software solutions is highly competitive and subject to
rapidly changing technology. Competition could seriously impede our ability to
sell additional products and services on terms favorable to us. Competitive
pressures could reduce our market share or require us to reduce our prices,
which would reduce our revenues and/or operating margins. Many of our
competitors have substantially greater financial, marketing or other resources,
and greater name recognition than we do. See "Business -- Competition" on page
50 for a discussion of our competitive position. In addition, these companies
may adopt aggressive pricing policies that could compel us to reduce the prices
of our products and services in response. Our competitors may also be able to
respond more quickly than we can to new or emerging technologies and changes in
customer requirements. Our current and potential competitors may:
- develop and market new technologies that render our existing or future
products obsolete, unmarketable or less competitive;
- make strategic acquisitions or establish cooperative relationships among
themselves or with other solution providers, which would increase the
ability of their products to address the needs of our customers; and
- establish or strengthen cooperative relationships with our current or
future strategic partners, which would limit our ability to sell
products through these channels.
As a result, we may not be able to maintain a competitive position against
current or future competitors.
IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, OUR ABILITY TO GROW OUR BUSINESS COULD BE HARMED.
We believe that our future success will depend upon our ability to attract
and retain highly skilled personnel, including John Buchanan, our chairman and
chief executive officer; Gordon Masson, our president; John L. Goedert, our
senior vice president, research and development; and Gregory A. Effertz, our
vice president, finance and administration and chief financial officer. We
currently do not have any key-man life insurance relating to key personnel, who
are employees at-will and, except for Mr. Buchanan, are not subject to
employment contracts. Mr. Buchanan's employment agreement ends on November 29,
1999. The loss of the services of any one or more of these key persons could
harm our ability to grow our business.
We also must attract, integrate and retain skilled sales, research and
development, marketing and management personnel. Competition for these types of
employees is intense, particularly in our industry. Failure to hire and retain
qualified personnel would harm our ability to grow our business.
IF WE FAIL TO ESTABLISH, MAINTAIN OR EXPAND OUR RELATIONSHIPS WITH THIRD PARTIES
WHO IMPLEMENT OUR PRODUCTS, OUR ABILITY TO MEET OUR CUSTOMERS' NEEDS COULD BE
HARMED AND MAY RESULT IN A DECREASE IN OUR REVENUE.
We rely, and expect to continue to rely, on a number of third parties to
implement our software solutions at customer sites. If we are unable to
establish and maintain effective, long-term relationships with these
implementation providers, or if these providers do not meet the needs or
expectations of our customers, our revenue will be reduced and our customer
relationships will be harmed. Our current implementation partners are not
contractually required to continue to help implement our software
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solutions. If the number of our product implementations continues to increase,
we will need to develop new relationships with additional third-party
implementation providers to provide these services.
We may be unable to establish or maintain relationships with third parties
having sufficient qualified personnel resources to provide the necessary
implementation services to support our needs. If third-party services are
unavailable, we will be required to provide these services internally, which
would significantly limit our ability to meet our customers' implementation
needs and would increase our operating expenses and could reduce our gross
margins. A number of our competitors, including IBM and SAP, have significantly
more established relationships with these third parties and, as a result, these
third parties may be more likely to recommend competitors' products and services
rather than our own. In addition, we cannot control the level and quality of
service provided by our current and future implementation partners.
IF WE FAIL TO OBTAIN ACCESS TO THE INTELLECTUAL PROPERTY OF THIRD PARTIES, OUR
BUSINESS AND OPERATING RESULTS COULD BE HARMED.
We must now, and may in the future have to, license or otherwise obtain
access to the intellectual property of third parties and related parties,
including HNC, Lucent, MicroStrategy and Oracle. See "Business -- Technology
Characteristics" beginning on page 48 and "Certain Transactions -- License
Agreement" on page 71 for a discussion of our technology licenses from third
parties. Our business would be seriously harmed if the providers from whom we
license such software cease to deliver and support reliable products or enhance
their current products. In addition, the third-party software may not continue
to be available to us on commercially reasonable terms or prices or at all. Our
inability to maintain or obtain this software could result in shipment delays or
reduced sales of our products. Furthermore, we might be forced to limit the
features available in our current or future product offerings. Either
alternative could seriously harm our business and operating results.
IF OUR INTELLECTUAL PROPERTY IS NOT ADEQUATELY PROTECTED, OUR COMPETITORS MAY
GAIN ACCESS TO OUR TECHNOLOGY AND WE MAY LOSE CUSTOMERS.
We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade
secrets, and copyright and trademark laws.
We seek to protect our software, documentation and other written materials
under trade secret and copyright laws, which afford only limited protection. In
addition, we cannot assure you that any of our proprietary rights with respect
to our Retail.com network will be viable or of value in the future because the
validity, enforceability and type of protection of proprietary rights in
Internet-related industries are uncertain and still evolving.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and expensive, and while we are unable to determine the extent to
which piracy of our software products exists, software piracy may be a problem.
In addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States. We intend to
vigorously protect our intellectual property rights through litigation and other
means. However, such litigation can be costly to prosecute and we cannot be
certain that we will be able to enforce our rights or prevent other parties from
developing similar technology, duplicating our products or designing around our
intellectual property.
IF, IN THE FUTURE, THIRD PARTIES CLAIM THAT OUR PRODUCTS INFRINGE ON THEIR
INTELLECTUAL PROPERTY, WE MAY INCUR SIGNIFICANT COSTS.
There has been a substantial amount of litigation in the software industry
and the Internet industry regarding intellectual property rights. It is possible
that in the future third parties may claim that we or our current or potential
future products infringe their intellectual property. We expect that software
product developers and providers of electronic commerce solutions will
increasingly be subject to
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infringement claims as the number of products and competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Any claims, with or without merit, could be time-consuming, result in
costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements. Royalty or licensing agreements, if required,
may not be available on terms acceptable to us or at all, which could seriously
harm our business.
OUR BUSINESS IS SUBJECT TO ECONOMIC, POLITICAL AND OTHER RISKS ASSOCIATED WITH
INTERNATIONAL SALES.
Since we sell our products worldwide, our business is subject to risks
associated with doing business internationally. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" beginning
on page 27 for a discussion of our percentage of revenue originating outside of
North America and our percentage of sales not denominated in US dollars. To the
extent that our sales are denominated in foreign currencies, the revenue we
receive could be subject to fluctuations in currency exchange rates. If the
effective price of the products we sell to our customers were to increase due to
fluctuations in foreign currency exchange rates, demand for our technology could
fall, which would, in turn, reduce our revenue. We have not historically
attempted to mitigate the effect that currency fluctuations may have on our
revenue through use of hedging instruments, and we do not currently intend to do
so in the future.
We anticipate that revenue from international operations will continue to
represent a substantial portion of our total revenue. Accordingly, our future
results could be harmed by a variety of factors, including:
- changes in foreign currency exchange rates;
- greater risk of uncollectible accounts;
- changes in a specific country's or region's political or economic
conditions, particularly in emerging markets;
- trade protection measures and import or export licensing requirements;
- potentially negative consequences from changes in tax laws;
- difficulty in staffing and managing widespread operations;
- international variations in technology standards;
- differing levels of protection of intellectual property; and
- unexpected changes in regulatory requirements.
IF THE INTERNET FAILS TO BE ACCEPTED AS A VIABLE LONG-TERM COMMUNICATIONS
PROTOCOL, OUR BUSINESS AND OPERATING RESULTS WILL BE SERIOUSLY HARMED.
As our software solutions are web-based, we depend on the acceptance of the
Internet as a communications protocol. However, this acceptance may not
continue. Rapid growth of the Internet is a recent phenomenon. The Internet may
not be accepted as a viable long-term communications protocol for businesses for
a number of reasons. These reasons include:
- potentially inadequate development of the necessary communications and
computer network technology, particularly if rapid growth of the
Internet continues;
- delayed development of enabling technologies and performance
improvements;
- increased security risks in transmitting and storing confidential
information over public networks; and
- potentially increased governmental regulation.
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ERRORS AND DEFECTS IN OUR PRODUCTS COULD RESULT IN SIGNIFICANT COSTS TO US AND
COULD IMPAIR OUR ABILITY TO SELL OUR PRODUCTS.
Our products are complex and, accordingly, may contain undetected errors or
failures when we first introduce them or as we release new versions. This may
result in loss of, or delay in, market acceptance of our products and could
cause us to incur significant costs to correct errors or failures or to pay
damages suffered by customers as a result of such errors or failures. In the
past, we have discovered software errors in our new releases and new products
after their introduction. We have incurred costs during the period required to
correct these errors, although to date such costs, including costs incurred on
specific contracts, have not been material. We may in the future discover errors
in new releases or new products after the commencement of commercial shipments.
CHANGES IN ACCOUNTING STANDARDS COULD AFFECT THE CALCULATION OF OUR FUTURE
OPERATING RESULTS.
Statement of Position 97-2, "Software Revenue Recognition," was issued in
October 1997 by the American Institute of Certified Public Accountants and
amended by Statement of Position 98-4. We adopted Statement of Position 97-2
effective January 1, 1998 and Statement of Position 98-4 effective March 31,
1998. The American Institute of Certified Public Accountants has also issued
Statement of Position 98-9 -- which will be effective for us for transactions
entered into beginning January 1, 2000. Full implementation guidelines for this
standard and additional standards could be issued in the future. These
guidelines and additional standards could lead to unanticipated changes in our
current revenue recognition policies, which changes could harm our business,
financial condition and operating results. Our revenue recognition policies are
further discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" beginning on page 27.
OUR BUSINESS COULD BE HARMED IF THE SYSTEMS WE, OUR CUSTOMERS OR OUR VENDORS USE
ARE NOT YEAR 2000 COMPLIANT.
The risks posed by Year 2000 issues, which arise because computer systems
and software products may be unable to distinguish between twentieth century
dates and twenty-first century dates, could harm our business in a number of
significant ways. If we experience disruptions as a result of the Year 2000
problem, our revenues could decline and we may incur significant costs to
correct any problems. Additionally, we rely on information technology supplied
by third parties, and our strategic partners also are heavily dependent on
information technology systems and on their own third-party vendor systems. Year
2000 problems experienced by us or any of these third parties could harm our
business. Additionally, the Internet could face serious disruptions arising from
the Year 2000 problem, which would harm our business, and particularly our
Retail.com network.
We cannot guarantee that retailers and members of their supply chains will
be able to utilize our Retail.com network without serious disruptions arising
from the Year 2000 problem. Given the pervasive nature of the Year 2000 problem,
it is also possible that disruptions in industries and market segments, other
than the retail industry, will adversely affect our business.
RISKS RELATED TO OUR SEPARATION FROM HNC
AS LONG AS HNC OWNS A MAJORITY OF OUR CAPITAL STOCK, WE WILL BE CONTROLLED BY
HNC AND OUR OTHER STOCKHOLDERS WILL BE UNABLE TO AFFECT THE OUTCOME OF
STOCKHOLDER VOTING.
After the completion of this offering, HNC will own approximately 88.9% of
our outstanding common stock, or approximately 87.4% if the underwriters
exercise their over-allotment option in full. As long as HNC owns at least 25%
of our outstanding capital stock, HNC will be able to nominate three of the
seven directors on our board of directors. Investors in this offering will not
be able to affect the outcome of any stockholder vote for so long as HNC owns a
majority of our common stock. As a result, HNC will control all matters
affecting us, including:
- the allocation of business opportunities that may be suitable for HNC
and us;
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- any determinations with respect to mergers or other business
combinations involving us;
- the acquisition or disposition of assets or businesses by us;
- our debt or equity financing, including future issuance of our common
stock or other securities;
- incurrence of debt by us;
- changes to the agreements providing for our separation from HNC;
- amendments to our certificate of incorporation or bylaws;
- the payment of dividends on our common stock; and
- determinations with respect to our tax returns.
IF WE NEED ADDITIONAL FINANCING TO MAINTAIN AND EXPAND OUR BUSINESS, HNC WILL BE
UNDER NO OBLIGATION TO PROVIDE FINANCING AND OTHER FINANCING MAY NOT BE
AVAILABLE ON FAVORABLE TERMS.
In the past, our capital needs have been satisfied by HNC. However,
following the separation, HNC will no longer have any obligation to provide
funds to finance our working capital or other cash requirements. We cannot
assure you that financing, if needed, will be available on favorable terms. If
we are unable to obtain financing on favorable terms or at all, our ability to
grow our business will be harmed.
We believe our capital requirements will vary greatly from quarter to
quarter, depending on a number of factors, including timing of capital
expenditures, fluctuations in our operating results and cash flows and our
financing activities. We believe that cash generated by our current operations,
along with the proceeds from this offering, will be sufficient to satisfy our
working capital, capital expenditure and research and development requirements
for at least the next 12 months. However, we may require or choose to obtain
additional debt or equity financing in the future. Future equity financings
would be dilutive to the existing holders of our common stock. Future debt
financings, if available, could have as a condition that we agree to restrictive
covenants and would require the consent of HNC. Finally, pursuant to an
agreement between HNC and us, until two years, and possibly longer, after the
distribution, our ability to issue common stock in connection with acquisitions,
offerings or otherwise will be limited.
WE WILL BE SUBJECT TO CONTRACTUAL LIMITATIONS WHICH COULD LIMIT THE CONDUCT OF
OUR BUSINESS AND OUR ABILITY TO PURSUE OUR BUSINESS OBJECTIVES.
The separation agreement that we will enter into with HNC relating to this
offering and the potential distribution will contain a number of restrictive
covenants relating to the distribution, which will require that until two years
after the completion of the distribution, and possibly longer, we cannot take
specified actions without either the consent of HNC or a supplemental ruling
from the Internal Revenue Service. For further information regarding these
specified actions and the restrictions on our ability to take those actions, see
"Certain Transactions -- Separation Agreement" beginning on page 66.
In addition, under the separation agreement we will agree to indemnify HNC
on an after-tax-basis for any tax liability incurred to HNC as a result of our
taking any of these actions, whether or not HNC consents or a supplemental
ruling is obtained, or taking or failing to take any other action which causes
the distribution to become taxable. For further information regarding the
separation agreement, see "Certain Transactions -- Separation Agreement"
beginning on page 66.
WE MAY HAVE POTENTIAL BUSINESS CONFLICTS OF INTEREST WITH HNC WITH RESPECT TO
OUR PAST AND ONGOING RELATIONSHIP THAT COULD HARM OUR BUSINESS OPERATIONS.
Conflicts of interest may arise between HNC and us in a number of areas
relating to our past and ongoing relationships, including:
- major business combinations involving us or HNC, including an
acquisition of us by a third party;
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- our efforts to raise capital in debt or equity financing;
- labor, tax, employee benefit, indemnification and other matters arising
from our separation from HNC;
- intellectual property matters;
- employee retention and recruiting;
- sales or distributions by HNC of all or any portion of its ownership
interest in us;
- the nature, quality and pricing of transitional services HNC has agreed
to provide us; and
- business opportunities that may be attractive to both HNC and us.
We may not be able to resolve any potential conflicts and, even if we do,
the resolution may be less favorable than if we were dealing with an
unaffiliated party. The agreements we will enter into with HNC may be amended if
the parties agree. While we are controlled by HNC, HNC may be able to require us
to agree to amendments to these agreements that may be less favorable to us than
the original terms of any of these agreements. For a discussion of HNC's rights
to amend these agreements, see "Certain Transactions" beginning on page 66.
BECAUSE HNC IS NOT UNDER ANY OBLIGATION TO DISTRIBUTE OUR COMMON STOCK, IT MAY
BE MORE DIFFICULT FOR US TO RETAIN KEY EMPLOYEES SHOULD HNC NOT PROCEED WITH THE
DISTRIBUTION.
HNC does not have any obligation with respect to the timing or any of the
terms of the distribution of our common stock. We cannot assure you as to
whether or when the distribution will occur, or as to the terms of the
distribution. Under specified conditions, if the distribution does not occur,
the vesting schedule of the Retek stock options granted to four of our key
employees will be credited by 12 months. If these employees enter into
non-compete agreements with us, the vesting schedule will be credited by an
additional 12 months. For information regarding the conditions which will result
in the crediting of these vesting schedules, we refer you to
"Management -- Treatment of Outstanding Stock Options" on page 58. Upon any
acceleration of their vesting schedules, it may be more difficult for us to
retain these key employees. The loss of the services of one or more of these
employees could harm our business.
BECAUSE MANY OF OUR DIRECTORS AND EXECUTIVE OFFICERS OWN HNC COMMON STOCK, THEY
MAY HAVE CONFLICTS OF INTEREST WHEN FACED WITH DECISIONS WHICH COULD HAVE
DIFFERENT IMPLICATIONS FOR HNC AND US.
Many of our directors and executive officers own a substantial amount of
HNC common stock and options to purchase HNC common stock. Ownership of HNC
common stock by our directors and officers after our separation from HNC could
create, or appear to create, potential conflicts of interest when directors and
officers are faced with decisions that could have different implications for HNC
and us. For information regarding directors' and officers' ownership of options
to acquire HNC common stock, see "Management -- Executive Compensation --
Aggregated HNC Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values" on page 58.
THE TRANSITIONAL SERVICES THAT HNC WILL PROVIDE TO US MAY NOT BE SUFFICIENT TO
MEET OUR NEEDS, AND WE MAY NOT BE ABLE TO REPLACE THESE SERVICES AFTER OUR
AGREEMENTS WITH HNC EXPIRE.
HNC will agree to provide specified transitional services to us for a
limited time period, including services related to employee benefits for our
employees. Although HNC will be contractually obligated to provide us with these
services, these services may not be provided at the same level as when we were
part of HNC, and we may not be able to obtain the same benefits. After the
expiration of these various arrangements, we may not be able to replace these
transitional services and employee benefits in a timely manner or on terms and
conditions, including cost, as favorable as those we will receive from HNC. The
prices charged to us under these agreements may be higher or lower than the
prices that we may be required to pay third parties for similar services or the
costs of similar services if we undertake them ourselves. For more information
about these arrangements, see "Certain Transactions -- Services Agreement" on
page 71.
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RISKS RELATED TO THE SECURITIES MARKETS AND OWNERSHIP OF OUR COMMON STOCK
OUR SECURITIES HAVE NO PRIOR MARKET, AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THIS OFFERING.
Before this offering, there has not been a public market for our common
stock, and an active public market for our common stock may not develop or be
sustained after this offering. The market price of our common stock could be
subject to significant fluctuations after this offering. Among the factors that
could affect our stock price are:
- quarterly variations in our operating results;
- changes in revenue or earnings estimates or publication of research
reports by analysts;
- strategic moves by us or our competitors, such as acquisitions or
restructurings or changes in business strategy;
- actions by institutional stockholders or by HNC prior to its
distribution of our stock;
- speculation in the press or investment community;
- general market conditions; and
- domestic and international economic factors unrelated to our
performance.
The stock markets in general, and the markets for technology stocks in
particular, have experienced extreme volatility that has often been unrelated to
the operating performance of particular companies. These broad market
fluctuations may adversely affect the trading price of our common stock. In
particular, we cannot assure you that you will be able to resell your shares at
or above the initial public offering price, which will be determined by
negotiations between the representatives of the underwriters and us. See the
section entitled "Underwriting" beginning on page 86 for a discussion of the
factors to be considered in determining the initial public offering price.
THE PRICE OF OUR COMMON STOCK COULD DECLINE AS A RESULT OF SALES OR
DISTRIBUTIONS OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE PUBLIC MARKET.
HNC has informed us that it is HNC's current intention to distribute all of
the shares of our common stock it owns after this offering is completed to HNC
stockholders provided specified conditions are met, including the approval of
the HNC Board of Directors. For further information regarding the distribution
see "Our Separation from HNC" beginning on page 20, and "Certain Transactions"
beginning on page 66. Substantially all of those shares would be eligible for
immediate resale in the public market following a distribution by HNC. We are
unable to predict whether significant amounts of our common stock will be sold
in the open market in anticipation of, or following, this possible distribution.
We are also unable to predict whether a sufficient number of buyers would be in
the market at that time. Sales by HNC or others of substantial amounts of our
common stock in the public market, or the perception that such sales might
occur, could cause the price of our common stock to decline.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR POTENTIAL STOCK
PRICE VOLATILITY.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation, which has
been prevalent with respect to technology companies. Securities litigation could
result in substantial costs, harm our financial condition and would divert
management's attention and resources.
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PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DELAY OR PREVENT AN
ACQUISITION OF US, WHICH COULD DECREASE THE VALUE OF YOUR SHARES.
Our certificate of incorporation and bylaws and Delaware law will contain
provisions that could make it harder for a third party to acquire us without the
consent of our board of directors, although these provisions have little
significance while we are controlled by HNC. These provisions will include a
classified board of directors and limitations on actions by our stockholders by
written consent. In addition, our board of directors will have the right to
issue preferred stock without stockholder approval, which could be used to
dilute the stock ownership of a potential hostile acquiror. In addition, once
HNC or its successors own less than 15% of our outstanding voting stock, Section
203 of the Delaware General Corporation Law will apply to us and will impose
some restrictions on mergers and other business combinations between us and any
holder of 15% or more of our outstanding common stock. Although we believe these
provisions will provide for an opportunity to receive a higher bid by requiring
potential acquirors to negotiate with our board of directors, these provisions
apply even if the offer may be considered beneficial by some stockholders.
OUR USE OF THE PROCEEDS FROM THIS OFFERING MAY NOT MAXIMIZE RETURNS ON
INVESTMENT.
We have broad discretion in how to use most of the proceeds of this
offering. Stockholders may not agree with the ways management decides to use the
proceeds. Our primary goal with this offering is to increase our working
capital, create a public market for our common stock, increase our visibility in
our markets and facilitate future access to the public finance markets. We
currently plan to use the proceeds of this offering for working capital and
general corporate purposes, including the repayment of intercompany debt to HNC
and the payment of notes issued in connection with the purchase of all the
outstanding shares of WebTrak Limited. Until we need to use the proceeds of this
offering, we intend to invest the proceeds in investment grade, interest bearing
securities.
IF YOU PURCHASE COMMON STOCK IN THIS OFFERING, YOU WILL EXPERIENCE IMMEDIATE AND
SUBSTANTIAL DILUTION.
The initial public offering price of our common stock is substantially
higher than the book value per share of the outstanding common stock.
Accordingly, if you purchase common stock in this offering, you will experience
immediate dilution of approximately $9.95 in the book value per share of the
common stock, meaning that the net tangible book value of each share purchased
by you will be less than the purchase price you paid. To the extent that
outstanding options to purchase our common stock are exercised, or options
reserved for issuance are issued and exercised, each stockholder purchasing in
this offering will experience further substantial dilution. For a more detailed
discussion of the dilution you can expect to experience, see "Dilution" on page
25.
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SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This prospectus contains forward-looking statements in "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks outlined
under "Risk Factors" beginning on page 8, that may cause our or our industry's
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform these statements to actual future results.
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OUR SEPARATION FROM HNC
Set forth in this section is HNC's current intention as to the possible
distribution of any or all of its shares of our common stock to its
stockholders. HNC is not obligated to complete the distribution. If the
distribution is ultimately completed, HNC does not have any obligation with
respect to the timing or any of the terms of the distribution. We cannot assure
you as to whether or not or when the distribution will occur, or as to the terms
of the distribution.
OVERVIEW
We are currently a wholly owned subsidiary of HNC Software Inc., a public
company that develops and markets predictive software solutions for businesses.
Immediately prior to the completion of this offering, our business will combine
the business activities of Retek Information Systems, Inc. and Retek Inc.,
formerly Retek Logistics, Inc. Retek Information Systems develops and markets
web-based business-to-business software solutions for retailers. Founded in
1995, Retek Information Systems was acquired by HNC in 1996. Retek Logistics,
founded in 1985, develops warehouse management software solutions. HNC acquired
Retek Logistics in 1998. On September 9, 1999, Retek Logistics was
reincorporated as a Delaware corporation and renamed "Retek Inc." In connection
with the separation of our business from HNC, HNC will contribute all of the
outstanding capital stock of Retek Information Systems to Retek Inc.
HNC develops, markets and supports software for businesses in specified
targeted service industries. HNC's software solutions convert existing data into
meaningful recommendations and actions that allow organizations to improve
profitability, competitiveness and customer satisfaction. HNC sells and markets
its software and services in North America and internationally. HNC provides
software for each of the healthcare/insurance, financial services and retail
industries. Substantially all of the revenue HNC earns from the retail industry
is attributable to our software solutions. After this offering, HNC will focus
on its remaining core software markets, namely the healthcare/insurance and
financial services industries. However, HNC is not obligated to refrain from
providing software solutions to the retail industry or from competing with us.
BENEFITS OF THE SEPARATION
We believe that we will realize benefits from our separation from HNC,
including the following:
- Greater Strategic Focus. As a result of having our own management team
and a board with independent outside directors, we expect to have a
sharper focus on our business and strategic opportunities. We will also
have greater ability to modify business processes to better fit the
needs of our customers and employees.
- Better Incentives for Employees and Greater Accountability. The
separation will allow us to offer our employees compensation, including
cash and stock based compensation, directly linked to the performance of
our business. We expect these incentives to enhance our ability to
attract and retain qualified personnel.
- Increased Speed and Responsiveness. We expect to be able to make
decisions more quickly, deploy resources more rapidly and efficiently
and operate with greater flexibility than when we were a part of a
larger organization. In addition, we expect to enhance our
responsiveness to customers and partners.
SEPARATION AND TRANSITIONAL AGREEMENTS
We will enter into agreements with HNC providing for the separation of our
business from HNC, including a separation agreement and a corporate rights
agreement. These agreements will generally
20
<PAGE> 24
provide for the transfer from HNC to us of assets and the assumption by us of
liabilities relating to our business. We will also enter into a license
agreement with HNC regarding the licensing to us of intellectual property
relating to our business, a transitional services agreement pursuant to which
HNC will provide us with specified interim administrative and other services and
a tax sharing agreement pursuant to which we will contribute to the payment of
HNC's income taxes while we are consolidated with HNC for income tax purposes.
If HNC carries out the tax-free distribution, these agreements will
restrict our ability to take specified actions that, if taken, would cause the
distribution to be taxable to HNC or its stockholders, unless we obtain the
consent of HNC or HNC receives a supplemental ruling from the Internal Revenue
Service. In addition, under the separation agreement, we will agree to indemnify
HNC on an after-tax-basis for any tax liability incurred by HNC with respect to
the distribution as a result of our taking any of these specified actions or any
transaction or event occurring after the distribution that involves our stock,
assets or business or that of any of our affiliates, whether or not HNC consents
or a supplemental ruling is obtained.
The agreements relating to our separation from HNC will be made in the
context of a parent-subsidiary relationship, will be negotiated in the overall
context of our separation from HNC and will not be conditioned on HNC's
completion of the distribution. The terms of these agreements may be more or
less favorable to us if they had been negotiated with unaffiliated third
parties. For more information regarding the separation agreements, see "Certain
Transactions" beginning on page 66.
POSSIBLE FUTURE DISTRIBUTION BY HNC OF OUR COMMON STOCK
After the completion of this offering, HNC will own approximately 88.9% of
the total number of outstanding shares of our common stock, or approximately
87.4% if the underwriters' over-allotment option is exercised in full. HNC has
informed us that, following the completion of this offering, it is HNC's current
intention to distribute pro rata to its stockholders, as a dividend, all of the
shares of our common stock HNC will own after this offering, subject to the
satisfaction and fulfillment of several conditions. The conditions to the
distribution include the following:
- HNC's receipt of a written ruling from the Internal Revenue Service that
the distribution qualifies for tax-free treatment under Section 355 of
the Internal Revenue Code, such that HNC and HNC's stockholders will not
recognize income for federal tax purposes as a result of the
distribution;
- HNC's board of directors approval of the distribution, and determining
that the distribution is in the best interest of HNC's stockholders; and
- HNC's ability to effect the distribution in compliance with applicable
law and without violation or acceleration of its contractual
obligations.
HNC has indicated that the distribution will not occur prior to the later
of (1) March 31, 2000, and (2) 180 days after the completion of this offering
(unless the lead underwriter consents to an earlier date).
HNC has the sole discretion to determine whether it will carry out the
distribution, and if the distribution is carried out, the timing, structure and
terms of the distribution. HNC is not obligated to carry out the distribution,
and we cannot assure you as to whether or when the distribution may occur.
Neither HNC nor we have any intention of purchasing or redeeming the shares
issued in this offering if the distribution does not occur. In addition, even if
the distribution is ultimately completed, HNC does not have any obligation with
respect to the timing or any of the terms of the distribution.
21
<PAGE> 25
USE OF PROCEEDS
The net proceeds to us from the sale of the 5,000,000 shares of common
stock in this offering are estimated to be approximately $54,050,000, assuming
an initial public offering price of $12.00 per share, after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses, and assuming no exercise of the underwriters' over-allotment option to
purchase 750,000 shares from us. The primary purposes of this offering are to
increase our working capital, create a public market for our common stock,
increase our visibility in our markets and facilitate future access to the
public finance markets.
We intend to use the net proceeds from this offering for general corporate
purposes, principally working capital, including repayment of intercompany debt
to HNC, which was approximately $9,505,000 as of September 30, 1999, the payment
of notes in the amount of up to $8,000,000 which were issued in connection with
the purchase of all the outstanding shares of WebTrak Limited, capital
expenditures, geographic expansion of our operations, potential acquisitions,
and additional sales and marketing efforts. Although we regularly evaluate, in
the ordinary course of business, potential acquisitions of complementary
business, products or technologies, we have no specific understandings,
commitments or agreements with respect to any acquisition of or investment in
complementary businesses, products or technologies. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" beginning on page 36 for discussion of our strategy as it
relates to acquisitions or investments in complementary businesses or products.
Pending such uses, we will invest the proceeds of this offering in short-term,
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We currently expect to retain future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.
22
<PAGE> 26
CAPITALIZATION
The following table sets forth the following information:
- our actual capitalization as of September 30, 1999;
- our capitalization on an as adjusted basis, giving effect to the sale of
5,000,000 shares of common stock in this offering at an assumed initial
public offering price of $12.00 per share:
(1) assuming the filing of the certificate of amendment to our
certificate of incorporation increasing the number of authorized
shares of common stock to 150,000,000 shares and the number of
authorized shares of preferred stock to 5,000,000 shares;
(2) assuming the contribution by HNC of the 100 shares of outstanding
common stock of Retek Information Systems, Inc. to us;
(3) assuming the completion of a 40,000 for 1 stock split of our common
stock which will occur prior to the completion of this offering;
(4) assuming no exercise of the underwriters' over-allotment option; and
(5) after deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us.
This table excludes the following shares:
- approximately 6,986,000 shares of common stock issuable upon the
exercise of stock options we have granted through October 31, 1999 under
our 1999 Equity Incentive Plan and approximately 2,014,000 shares of
common stock issuable upon the exercise of stock options available for
future grants under this plan;
- 75,000 shares of common stock issuable upon the exercise of stock
options we have granted under our 1999 Directors Stock Option Plan and
325,000 shares of common stock issuable upon the exercise of stock
options available for future grants under this plan;
- 700,000 shares of common stock available for issuance under our 1999
Employee Stock Purchase Plan; and
- 222,222 shares of our common stock, assuming an initial public offering
price of $12.00 per share, which may be issued upon conversion of a note
which was issued in connection with the purchase of all of the
outstanding capital stock of WebTrak. For further information regarding
the note, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources"
beginning on page 36.
23
<PAGE> 27
The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 27 and our financial statements and the related
notes beginning on page F-1.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------
ACTUAL AS ADJUSTED
--------- -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
<S> <C> <C>
Stockholders' equity:
Retek Inc.:
Preferred stock, par value $0.01 per share: 5,000,000
shares authorized; no shares issued and outstanding
actual and no shares issued and outstanding, as
adjusted............................................... $ -- $ --
Common stock, par value $0.01 per share: 150,000,000
shares authorized; 1,000 shares issued and outstanding
actual and 45,000,000 shares issued and outstanding, as
adjusted............................................... -- 450
Additional paid-in capital................................ 6,564 80,644
Retek Information Systems, Inc.:
Common stock, par value $1.00 per share: 1,000 shares
authorized; 100 shares issued and outstanding actual... -- --
Additional paid-in capital................................ 20,480 --
Accumulated other comprehensive loss........................ (407) (407)
Retained earnings........................................... 14,443 14,443
------- -------
Total stockholders' equity................................ 41,080 95,130
------- -------
Total capitalization.............................. $41,080 $95,130
======= =======
</TABLE>
24
<PAGE> 28
DILUTION
Our net tangible book value as of September 30, 1999 was $38,163,000, or
approximately $0.95 per share assuming the contribution by HNC of all the
outstanding common stock of Retek Information Systems, Inc. to us and the
expected 40,000 for 1 stock split of our common stock. Net tangible book value
per share represents the amount of our total tangible assets less our total
liabilities, divided by the number of shares of common stock outstanding.
Dilution in net tangible book value per share represents the difference between
the amount per share paid by purchasers of shares of our common stock in this
offering and the net tangible book value per share of our common stock
immediately afterwards. After giving effect to the sale of the 5,000,000 shares
of common stock in this offering at an assumed initial public offering price of
$12.00 per share, and after deducting the estimated underwriting discounts and
commissions and offering expenses payable by us, our pro forma net tangible book
value at September 30, 1999, would have been $92,213,000, or approximately $2.05
per share. This represents an immediate increase in pro forma net tangible book
value of $1.10 per share to existing shareholders and an immediate dilution in
pro forma net tangible book value of $9.95 per share to new investors purchasing
shares of common stock in this offering. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Net tangible book value per share as of September 30,
1999................................................... $ 0.95
Increase attributable to new investors.................... 1.10
-------
Pro forma net tangible book value per share after this
offering.................................................. 2.05
------
Dilution in pro forma net tangible book value per share to
new investors............................................. $ 9.95
======
</TABLE>
Investors who are considering participating in this offering should note
that, as a result of the substantial dilution that will occur immediately
following this offering, they could pay an amount that substantially exceeds the
pro forma net tangible book value of our net assets, which is $2.05 per share.
In connection with this offering, we have granted stock options to
executive officers and other employees and independent contractors under our
1999 Equity Incentive Plan. For further information, see "Management -- Employee
Benefit Plans -- Retek 1999 Equity Incentive Plan" beginning on page 59.
Approximately 6,986,000 shares of common stock are issuable upon the exercise of
options granted through October 31, 1999 at an exercise price of $10.00 per
share. We have also made grants of stock options to our independent directors
under our 1999 Directors Stock Option Plan. For further information, see
"Management -- Employee Benefit Plans -- Retek 1999 Directors Stock Option Plan"
beginning on page 64. 75,000 shares of common stock are issuable upon the
exercise of these options at an exercise price of $10.00 per share. The exercise
of these or other stock options granted under our 1999 Equity Incentive Plan,
our 1999 Directors Stock Option Plan or otherwise in the future could result in
dilution to you.
The information in this section and the above table assumes:
(1) no exercise of any options;
(2) no exercise of the underwriters' over-allotment option;
(3) the filing of the certificate of amendment to our certificate of
incorporation to increase the number of authorized shares of common
stock to 150,000,000 shares and the number authorized shares of
preferred stock to 5,000,000 shares; and
(4) that the 222,222 shares of our common stock, assuming an initial
offering price of $12.00 per share, which may be issued upon conversion
of a note which was issued in connection with the purchase of all of
the outstanding capital stock of WebTrak, are not issued.
25
<PAGE> 29
SELECTED COMBINED FINANCIAL DATA
The data set forth below should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 27 and the combined financial statements and related notes
beginning on page F-1. The selected combined financial data as of December 31,
1997 and 1998 and for each of the three years in the period ended December 31,
1998 have been derived from our audited combined financial statements included
elsewhere in this prospectus. The selected unaudited combined financial data as
of December 31, 1994, 1995 and 1996 and for each of the two years in the period
ended December 31, 1995 have been derived from our separate unaudited combined
financial statements, not included in this prospectus, and the selected
unaudited combined financial data as of September 30, 1999 and for each of the
nine month periods ended September 30, 1998 and 1999 have been derived from our
separate unaudited combined financial statements included elsewhere in the
prospectus, have been prepared on the same basis as the audited combined
financial statements and, in the opinion of our management, contain all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of our combined operating results and combined financial position
for such periods. The combined operating results for the nine months ended
September 30, 1998 and 1999 are not necessarily indicative of the results to be
expected for any other interim period or any future fiscal year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF INCOME DATA:
Total revenue......................... $1,912 $3,836 $13,433 $30,923 $55,033 $39,829 $57,759
Gross profit.......................... 247 698 9,554 27,278 41,181 29,788 42,038
Operating (loss) income............... (328) (536) 1,418 6,619 8,088 5,194 9,485
Net (loss) income..................... (321) (244) 2,233 3,476 3,878 2,171 5,093
Pro forma unaudited basic net income
per common share(1)................. $ 0.10 $ 0.13
Pro forma unaudited diluted net income
per common share(1)................. $ 0.09 $ 0.12
Shares used in computing pro forma
unaudited basic net income per
common share(1)..................... 40,000 40,000
Shares used in computing pro forma
unaudited diluted net income per
common share(1)..................... 41,635 41,635
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30
--------------------------------------------- ------------------
1994 1995 1996 1997 1998 1999
------ ------ ------- ------- ------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and cash equivalents........... $ 434 $ 523 $ 1,459 $ 2,469 $ 415 $ 499
Working capital..................... (181) (480) 680 5,016 12,876 17,800
Total assets........................ 753 1,821 30,173 37,896 51,283 60,066
Payable to HNC Software Inc......... 578 883 6,197 6,491 5,944 9,505
Total stockholder's equity(2)....... 7 237 20,469 24,607 36,016 41,080
</TABLE>
- -------------------------
(1) For an explanation of the determination of the number of shares used in
computing pro forma unaudited basic and diluted net income per common share,
see Note 1 of the notes to our combined financial statements beginning on
page F-7.
(2) Upon the expected contribution by HNC of all the outstanding stock of Retek
Information Systems, Inc. to us and the expected 40,000 for 1 stock split of
our common stock, total stockholder's equity will remain the same.
26
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our combined financial statements
and the related notes, and the other financial information included in this
prospectus. This discussion and analysis contains forward-looking statements
that involve risks and uncertainties. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of
specified factors, including those set forth under "Risk Factors" beginning on
page 8 and elsewhere in this prospectus.
OVERVIEW
We are currently a wholly owned subsidiary of HNC. Immediately prior to the
completion of this offering, our business will combine the business activities
of Retek Information Systems, Inc. and Retek Inc., formerly Retek Logistics,
Inc. Retek Information Systems develops and markets web-based, business-
to-business software solutions for retailers. Founded in 1995, Retek Information
Systems was acquired by HNC in 1996. Neil Thall Associates, Inc., a wholly owned
subsidiary of HNC since 1991, which develops predictive software solutions for
retailers, was merged into Retek Information Systems in April 1997. Financial
results of Neil Thall Associates are included in all periods presented. Retek
Logistics, founded in 1985, develops warehouse management software solutions.
HNC acquired Retek Logistics in 1998. On September 9, 1999, Retek Logistics was
reincorporated as a Delaware corporation and renamed "Retek Inc." In connection
with the separation of our business from HNC, HNC will contribute all of the
outstanding capital stock of Retek Information Systems to Retek Inc.
The acquisition of Retek Information Systems by HNC allowed for the
integration of HNC's patented predictive technology into our software solutions
for retailers. We formalized a marketing relationship with Oracle in September
1998, providing us with an effective partnership with a world leader in
electronic commerce, an international channel to the largest retailers and the
support of Oracle's worldwide sales force.
Our total revenue has grown from $13.4 million in 1996 to $55.0 million in
1998 to $57.8 million through the first nine months of 1999. We have been
profitable for twelve consecutive quarters, resulting in retained earnings of
$14.4 million as of September 30, 1999. We have generated revenue from the sale
of software licenses, maintenance and support contracts, and professional
consulting and contract development services. At this time, we generally license
our products to customers on a perpetual basis and we recognize revenue upon
delivery of the products. Starting in the fourth quarter of 1999, we intend to
enter into software licensing agreements with revised terms for the majority of
our software products sold after this date. Under these agreements, we will
provide technical advisory services after the delivery of our products to help
our customers exploit the full value and functionality of our products. Revenue
from the sale of software licenses and technical advisory services under these
agreements will be recognized as the services are performed over the contract
period, which we expect will generally be 12 to 24 months, as determined by our
customers' objectives. As we begin to recognize license and service revenues
over a period of time, rather than upon the delivery of our products, we will
recognize significantly less revenue and our associated margins will be lower
for several quarters as compared to previous quarters, and we will incur
operating losses during these periods.
Customers who license our software generally purchase maintenance
contracts, typically covering renewable annual periods. In addition, customers
may purchase consulting services, which are customarily billed at a fixed daily
rate plus out-of-pocket expenses. Contract development services, including new
product development services, are typically performed for a fixed fee. We also
offer training services that are billed on a per student or per class session
basis.
Our revenue growth has resulted from a combination of increased market
penetration and an expanding product offering. In 1996 the majority of our
license revenue was attributable to a single
27
<PAGE> 31
client/server software solution, our Retek Merchandising System. Our investments
in research and development, acquisitions and alliances have helped us bring new
software solutions to market. Our investments produced a suite of decision
support solutions in 1997; the retooling of our applications for the web in
1998; and the delivery of web-based, business-to-business collaborative
planning, critical path and product design solutions in 1999. To support our
growth during these periods we also continued to invest in internal
infrastructure by hiring employees throughout various departments of the
organization.
We market our software solutions worldwide through direct and indirect
sales channels. Revenue generated from our direct sales channel accounted for
approximately 100%, 86% and 74% of our total revenue in 1997, 1998 and the nine
months ended September 30, 1999. Our indirect sales channel is driven mainly by
our relationship with Oracle.
Revenue attributable to customers outside of North America accounted for
approximately 40%, 33% and 39% of our total revenue in 1997, 1998 and the nine
months ended September 30, 1999. Approximately 22% and 15% of our sales were
denominated in currencies other than the U.S. dollar for 1998 and the nine
months ended September 30, 1999.
We primarily sell perpetual licenses for which we recognize revenue in
accordance with generally accepted accounting principles, upon meeting each of
the following criteria:
- execution of a written purchase order, license agreement or contract;
- delivery of software authorization keys;
- the license fee is fixed and determinable;
- collectibility of the proceeds is assessed as being probable; and
- vendor-specific objective evidence exists to allocate the total fee to
elements of the arrangement.
Vendor-specific objective evidence is based on the price charged when an
element is sold separately, or if not yet sold separately, is established by
authorized management. All elements of each order are valued at the time of
revenue recognition. We recognize revenue:
- for sales made through our distributors, resellers and original
equipment manufacturers, at the time these partners report to us that
they have sold the software to the end-user and after all revenue
recognition criteria have been met;
- from maintenance agreements related to our software, over the respective
maintenance periods;
- from customer modifications, as the services are performed using the
percentage of completion method; and
- from services, using the percentage of completion method, based on costs
incurred to date compared to total estimated costs at completion.
We record amounts received under contracts in advance of performance as
deferred revenue and recognize these amounts within one year from receipt.
28
<PAGE> 32
RESULTS OF OPERATIONS
The following table presents selected financial data for the periods
indicated as a percentage of our total revenue. Our historical reporting results
are not necessarily indicative of the results to be expected for any future
period.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
-----------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------ --------------
1996 1997 1998 1998 1999
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue:
License and maintenance................................ 73% 93% 78% 78% 72%
Services and other..................................... 27 7 22 22 28
--- --- ---- ---- ----
Total revenue....................................... 100 100 100 100 100
--- --- ---- ---- ----
Cost of revenue:
License and maintenance................................ 13 9 8 8 7
Services and other..................................... 16 3 17 17 20
--- --- ---- ---- ----
Total cost of revenue............................... 29 12 25 25 27
--- --- ---- ---- ----
Gross margin............................................. 71 88 75 75 73
Operating expenses:
Research and development............................... 36 31 23 23 26
Sales and marketing.................................... 14 27 26 26 22
General and administrative............................. 10 9 7 8 7
Acquired in-process research and development........... -- -- 3 4 --
Acquisition related amortization of intangibles........ -- -- 1 1 1
--- --- ---- ---- ----
Total operating expenses............................ 60 67 60 62 56
--- --- ---- ---- ----
Operating income......................................... 11 21 15 13 17
Other income (expense), net.............................. -- -- -- -- (1)
--- --- ---- ---- ----
Income before income tax (benefit) provision............. 11 21 15 13 16
Income tax (benefit) provision........................... (6) 10 8 8 7
--- --- ---- ---- ----
Net income............................................... 17% 11% 7% 5% 9%
=== === ==== ==== ====
- -------------------------
Cost of license and maintenance revenue, as a percentage
of license and maintenance revenue..................... 18% 10% 10% 10% 10%
Cost of services and other revenue, as a percentage of
services and other revenue............................. 56% 44% 77% 78% 71%
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
REVENUE
Total revenue. Total revenue is comprised of software license and
maintenance revenue and services and other revenue. Total revenue increased 45%
from $39.8 million in the nine months ended September 30, 1998 to $57.8 million
in the nine months ended September 30, 1999. Increases in total revenue in the
nine months ended September 30, 1998 and 1999 are attributable primarily to
increases in the volume of sales and not to increases in prices.
License and maintenance revenue. License and maintenance revenue increased
34% from $30.9 million in the nine months ended September 30, 1998 to $41.4
million in the nine months ended
29
<PAGE> 33
September 30, 1999. The increase was primarily the result of the addition of new
customers, as well as the introduction of new software solutions.
Services and other revenue. Services and other revenue increased 84% from
$8.9 million in the nine months ended September 30, 1998 to $16.4 million in the
nine months ended September 30, 1999. The increase was driven by increases in
consulting services of $5.1 million and in custom development of $1.2 million,
each as a result of our expanding customer base.
COST OF REVENUE
Cost of license and maintenance revenue. Cost of license and maintenance
revenue consists primarily of fees for third party software products that are
integrated into our products, and salaries and related expenses of our customer
support organization. Cost of license and maintenance revenue increased by 33%
from $3.1 million in the nine months ended September 30, 1998 to $4.1 million in
the nine months ended September 30, 1999. This increase was a result of an
increase in the number of software licenses sold to customers. We believe that
our cost of license and maintenance revenue will continue to increase as we hire
personnel for our customer support organization. As a percentage of license and
maintenance revenue, cost of license and maintenance revenue was 10% for both
the nine months ended September 30, 1998 and 1999.
Cost of services and other revenue. Cost of services and other revenue
includes salaries and related expenses of our consulting organization; cost of
third parties contracted to provide consulting services to our customers; and an
allocation of our facilities and depreciation expenses. Cost of services and
other revenue increased 67% from $7.0 million for the nine months ended
September 30, 1998 to $11.6 million for the nine months ended September 30,
1999. The increase was driven principally by increases in consulting service
costs of $1.9 million and increased custom development costs of $1.0 million, in
each case due to our expanding customer base. We believe that our cost of
services revenue will continue to increase as we hire personnel for our
consulting organization.
OPERATING EXPENSES
Research and development. Research and development expenses, which are
expensed as incurred, consist primarily of salaries and related costs of our
engineering organization; fees paid to third-party consultants; and an
allocation of our facilities and depreciation expenses. We believe that our
success depends on continued enhancement of our current products and our ability
to develop new technologically advanced products that meet the sophisticated
requirements of our customers. We have increased our investment in research and
development in absolute dollars year over year since 1995. Research and
development expenses increased 59% from $9.3 million in the nine months ended
September 30, 1998 to $14.8 million in the nine months ended September 30, 1999.
The increase in these expenses was due to increases in labor costs, including
hired personnel and third party consultants. We expect research and development
expenses to increase in absolute dollars in future periods.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries and related costs of our sales and marketing organization: sales
commissions; costs of our marketing programs, including public relations,
advertising, trade shows, collateral sales materials, and our customer user
reference group program; rent and facilities costs associated with our regional
and international sales offices; and an allocation of our facilities and
depreciation expenses. Sales and marketing expenses increased 26% from $10.3
million in the nine months ended September 30, 1998 to $12.9 million in the nine
months ended September 30, 1999. The increases in sales and marketing expenses
were due to growth in our sales and marketing organization, including a $941,000
increase in personnel and related costs, a $575,000 increase in travel and a
$444,000 increase in our marketing programs. Although we have increased our
absolute sales and marketing expenses, the rate of increase is less than the
rate of increase in total revenue. We anticipate that sales and marketing
expenses will increase in absolute dollars to support our intended expansion of
our sales and marketing organization.
30
<PAGE> 34
General and administrative. General and administrative expenses consist
primarily of costs from our finance and human resources organizations; third
party legal and other professional services fees; and an allocation of our
facilities costs and depreciation expenses. General and administrative expenses
increased 36% from $3.0 million in the nine months ended September 30, 1998 to
$4.1 million in the nine months ended September 30, 1999. The increase in
absolute general and administrative expenses is attributable to growth of our
administrative organizations in support of our overall growth. General and
administrative expenses were 8% of total revenue for the nine months ended
September 30, 1998 and 7% of total revenue for the nine months ended September
30, 1999. This decrease in general and administrative expenses as a percentage
of revenue was attributable to the benefits derived from economics of scale. We
expect that becoming an independent public company may create a short-term
increase in general and administrative expenses as a percentage of total
revenues. Our management estimates that non-recurring general and administrative
expenses of approximately $400,000 will be incurred in connection with our
becoming an independent public company. These expenses include additional legal
and accounting fees, public relations costs and costs related to educational
programs regarding our equity incentive plans and updating of internal policies
and procedures. These costs are expected to be non-recurring as they relate
primarily to the establishment of additional functions in connection with
becoming an independent public company.
In-process research and development. In connection with the acquisition of
Retek Logistics in March 1998, in-process research and development of $1.8
million was charged to results of operations on the acquisition date. See our
further discussion of this transaction included in "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Years Ended
December 31, 1996, 1997 and 1998" beginning on page 31.
Income Tax Provision. The income tax provision was $3.0 million for the
nine months ended September 30, 1998 and $4.1 million for the nine months ended
September 30, 1999. The income tax provisions for the nine months ended
September 30, 1998 and 1999 are based on management's estimates of the effective
tax rates to be incurred by us during those respective full fiscal years. The
income tax provision in 1998 includes the tax effects of non-deductible,
one-time write-offs of in-process research and development related to the
purchase of Retek Logistics, as well as research and development tax credits
generated during the nine months ended September 30, 1998 that we anticipate
using in the future. The income tax provision for 1999 includes the tax effects
of non-deductible amortization related to the purchase of Retek Logistics, as
well as research and development tax credits generated during the nine months
ended September 30, 1999 that we anticipate using in the future.
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUE
Total revenue. Total revenue increased 130% from $13.4 million in 1996 to
$30.9 million in 1997 and 78% to $55.0 million in 1998.
License and maintenance revenue. License and maintenance revenue increased
197% from $9.7 million in 1996 to $28.9 million in 1997 and 48% to $42.8 million
in 1998. The increase in both 1997 and 1998 was primarily due to the addition of
new customers as well as the introduction of new software solutions.
Services and other revenue. Services and other revenue decreased 45% from
$3.7 million in 1996 to $2.0 million in 1997 and increased 505% to $12.3 million
in 1998. The decrease from 1996 to 1997 was primarily attributable to a decrease
in commercial development contracts for the Demand Forecasting product, which
shifted to full commercial release under perpetual licensing arrangements in
early 1997. The increase in 1998 was due to a $6.9 million increase in
consulting services projects and a $3.3 million increase in custom development.
These increases were a result of our expanding customer base.
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<PAGE> 35
COST OF REVENUE
Cost of license and maintenance revenue. Cost of license and maintenance
revenue increased 53% from $1.8 million in 1996 to $2.7 million in 1997 and 58%
to $4.3 million in 1998. The increases are attributable to the increases in
license and maintenance revenue. As a percentage of license and maintenance
revenue, cost of license and maintenance revenue was 18% in 1996, 10% in 1997
and 10% in 1998. The decrease from 1996 to 1997 was attributable to a decrease
in royalty fees paid related to an indirect sales channel.
Cost of services and other revenue. Cost of services and other revenue
decreased from $2.1 million in 1996 to $898,000 in 1997 and increased to $9.5
million in 1998. As a percentage of services and other revenue, cost of services
and other revenue was 56% in 1996, 44% in 1997 and 77% in 1998. The decrease in
cost of services and other revenue as a percentage of services and other revenue
from 1996 to 1997 was primarily due to a decrease in the number of commercial
development contracts, which have substantially lower margins than custom
development or service projects. The increase in 1998 was primarily attributable
to an increase in consulting contracts for which we utilized a significant
amount of contract labor, which in turn caused a decrease in services and other
revenue gross margins. During 1997, we started to build our consulting services
business and as a result began to incur recruiting, training and management
support expenses. This build-up contributed to the decline in services and other
gross margins.
OPERATING EXPENSES
Research and development. We have increased our investment in research and
development in absolute dollars each year since 1995. Research and development
expenses increased 96% from $4.8 million in 1996 to $9.5 million in 1997 and 36%
to $12.9 million in 1998. As a percentage of total revenue, research and
development expenses decreased as a result of increasing economies of scale. The
absolute dollar increases in research and development expenses in 1997 and 1998
were due to significant increases in labor costs, which included hired personnel
and third party consultants.
Sales and marketing. Sales and marketing expenses increased 337% from $1.9
million in 1996 to $8.3 million in 1997 and 70% to $14.1 million in 1998. The
increase in sales and marketing expenses during 1997 was due to increases in
personnel and related costs. The increase in 1998 was due to an expansion in our
sales and marketing organization, including a $3.6 million increase in personnel
and related costs, a $910,000 increase in travel and a $203,000 increase in
marketing programs. Although we increased our absolute sales and marketing
expenses in 1998, they decreased as a percentage of total revenue.
General and administrative. General and administrative expenses increased
106% from $1.4 million in 1996 to $2.9 million in 1997 and 35% to $3.9 million
in 1998. The increase in absolute dollars in general and administrative expenses
was attributable to growth of our administrative organization in support of our
overall growth. The decrease in expenses as a percentage of total revenue
reflected increasing economies of scale and operating efficiencies.
In-process research and development. In connection with the acquisition of
Retek Logistics in March 1998, in-process research and development of $1.8
million was charged to results of operations on the acquisition date. Certain
products of Retek Logistics were complete in certain areas and under development
in others. The classification of the technology as complete or under development
was made in accordance with the guidelines of Statement of Financial Accounting
Standards No. 86, Statement of Financial Accounting Standards No. 2 and
Financial Accounting Standards Board Interpretation No. 4. At the time of
acquisition, Retek Logistics had a number of new software products under
development, including Retek Distribution Management Versions 6.0 and 7.0 and
Retek Distribution Management CBT. Retek Distribution Management Version 6.0 and
Retek Distribution Management CBT were both completed during 1998. Retek
Distribution Management 7.0 was in an early state of development as of the
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<PAGE> 36
acquisition date and was completed during the second quarter of 1999, incurring
costs of approximately $900,000 to reach technological feasibility.
We used an independent appraisal firm to assist us with our valuation of
the fair market value of the purchased assets. Fair market value is defined as
the estimated amount at which an asset might be expected to be exchanged between
a willing buyer and willing seller assuming the buyer continues to use the
assets in its current operations. We provided assumptions by product line of
revenue, cost of goods sold and operating expense to the appraiser to assist in
the valuation. The appraisal considered three traditional approaches to
valuation: the cost approach, the market approach and the income approach.
With respect to the forecasted earnings provided to the appraiser, Retek
Logistics forecasted slightly higher revenue growth rates than their historical
rates. These higher growth rates reflect Retek Logistics' expectation of greater
market acceptance with the release of its Oracle-based platform, as well as
improvements incorporated into Retek Distribution Management Versions 6 and 7.
Retek Logistics forecasted that gross margins would remain consistent relative
to prior years. Retek Logistics also forecasted that its current operating
expense levels would increase only moderately in absolute dollars and, as a
result, earnings before interest and taxes were expected to increase in later
years. We believe these growth expectations are reasonable if new product
versions are offered according to schedule. The statements regarding our
expectations are forward looking statements, which are subject to risks and
uncertainties. Actual results may differ materially from those anticipated. The
important factors that could cause actual results to differ include those
discussed elsewhere in this prospectus.
With respect to the discount rates used in the valuation approach, the
incomplete technology represents a mix of near and mid-term prospects for the
business and imparts a level of uncertainty to its prospects. It is the nature
of the business to be constantly developing new software for future product
releases. A reasonable expectation of return on the incomplete technology would
be higher than that of completed technology due to these inherent risks. As a
result, the earnings associated with incomplete technology were discounted at a
rate of 40% based upon the methodologies described in the next paragraph.
Because Retek Logistics did not have short-term or long-term debt as of the
date of acquisition, Moody's seasoned Baa rate for March 31, 1998 was used as
the cost of debt. The Capital Asset Pricing Model was used to determine the cost
of equity. It combines a risk free rate of return with an equity risk premium
multiplied by a factor, referred to as Beta, which is based on the performance
of common stock prices of similar publicly traded companies. Employing these
data, the discount rate attributable to the business was 30%, which was used for
valuing completed technology. Since incomplete technology represents a mix of
near and mid-term prospects for the business and imparts a certain level of
uncertainty and would require a higher return than completed technology, the
valuation report prepared by the appraiser suggests that a rate of 40% be
ascribed to the excess earnings of incomplete technology.
Acquisition related amortization of intangibles. In connection with the
purchase of Retek Logistics, the application of the purchase method for the
acquisition resulted in an excess of cost over net assets acquired of
approximately $6.6 million, of which $4.0 million was allocated to intangibles
and $1.8 million was allocated to in-process research and development. In
conjunction with the purchase, we recorded various intangible assets, which are
being amortized over estimated useful lives ranging from three to five years. In
connection with the acquisition of Retek Logistics, HNC has a contingent
obligation to issue additional shares of HNC common stock upon the achievement
of certain financial objectives during 1999. This consideration will not be
reflected in our financial position in the future.
Income tax (benefit) provision. The income tax benefit of $815,000 in 1996
was primarily attributable to the recognition of a $1.3 million deferred tax
asset based on anticipated future utilization of all of the remaining net
operating loss carryforwards, research and development credit carryforwards and
foreign tax credit carryforwards. A portion of the deferred tax asset had
previously been offset by a valuation allowance in the amount of $121,000. Based
on pre-tax income generated in the third and fourth quarters of fiscal 1996 and
estimates of future taxable income, our assessment was that it was more likely
33
<PAGE> 37
than not that we would realize the deferred tax assets in future periods.
Therefore, we released the valuation allowance provided on the deferred tax
assets during the fourth quarter of 1996.
The 1997 income tax provision of $3.2 million includes the effect of the
anticipated future realization of research and development tax credits generated
during the year. The 1998 income tax provision of $4.2 million includes the tax
effects of the non-deductible, one-time write-off of in-process research and
development related to the purchase of Retek Logistics. Other items effecting
the tax provision primarily relate to the anticipated future realization of
research and development tax credits generated during the year.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth a summary of our unaudited quarterly
operating results for each of the seven quarters in the period ended September
30, 1999. This information has been derived from unaudited interim financial
statements that, in the opinion of management, have been prepared on a basis
consistent with the financial statements contained elsewhere in this prospectus
and include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair statement of such information when read in conjunction with
our combined financial statements and related notes beginning on page F-1. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
1998 1999
--------------------------------------- -----------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
-------- ------- -------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
License and maintenance........ $ 9,032 $10,815 $11,066 $11,840 $11,658 $15,656 $14,078
Services and other............. 2,109 3,357 3,450 3,364 4,989 5,387 5,991
------- ------- ------- ------- ------- ------- -------
Total revenue............... 11,141 14,172 14,516 15,204 16,647 21,043 20,069
------- ------- ------- ------- ------- ------- -------
Cost of revenue:
License and maintenance........ 636 1,179 1,260 1,274 1,404 1,854 821
Services and other............. 1,299 2,598 3,069 2,537 2,885 4,577 4,180
------- ------- ------- ------- ------- ------- -------
Total cost of revenue....... 1,935 3,777 4,329 3,811 4,289 6,431 5,001
------- ------- ------- ------- ------- ------- -------
Gross profit..................... 9,206 10,395 10,187 11,393 12,358 14,612 15,068
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development....... 2,896 3,170 3,235 3,617 4,277 5,460 5,012
Sales and marketing............ 3,355 3,666 3,242 3,812 3,818 4,556 4,574
General and administrative..... 1,014 1,103 877 927 1,188 1,363 1,525
Acquired in-process research
and development............. 1,750 -- -- -- -- -- --
Acquisition related
amortization of
intangibles................. -- 143 143 143 258 258 264
------- ------- ------- ------- ------- ------- -------
Total operating expenses.... 9,015 8,082 7,497 8,499 9,541 11,637 11,375
------- ------- ------- ------- ------- ------- -------
Operating income................. 191 2,313 2,690 2,894 2,817 2,975 3,693
Other income (expense), net...... -- -- 19 (8) 16 (2) (344)
------- ------- ------- ------- ------- ------- -------
Income before income tax
provision...................... 191 2,313 2,709 2,886 2,833 2,973 3,349
Income tax provision............. 777 1,159 1,106 1,179 1,145 1,201 1,716
------- ------- ------- ------- ------- ------- -------
Net (loss) income................ $ (586) $ 1,154 $ 1,603 $ 1,707 $ 1,688 $ 1,772 $ 1,633
======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
License and maintenance........ 81% 76% 76% 78% 70% 74% 70%
Services and other............. 19 24 24 22 30 26 30
------- ------- ------- ------- ------- ------- -------
Total revenue............... 100% 100% 100% 100% 100% 100% 100%
------- ------- ------- ------- ------- ------- -------
</TABLE>
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<PAGE> 38
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
1998 1999
--------------------------------------- -----------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
-------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Cost of revenue:
License and maintenance........ 6% 8% 9% 8% 8% 9% 4%
Services and other............. 12 18 21 17 17 22 21
------- ------- ------- ------- ------- ------- -------
Total cost of revenue....... 18 26 30 25 25 31 25
------- ------- ------- ------- ------- ------- -------
Gross margin..................... 82 74 70 75 75 69 75
------- ------- ------- ------- ------- ------- -------
AS A PERCENTAGE OF TOTAL REVENUES
Operating expenses:
Research and development....... 26 22 22 24 26 26 25
Sales and marketing............ 30 27 22 25 23 22 23
General and administrative..... 9 8 6 6 7 6 8
Acquired in-process research
and development............. 15 -- -- -- -- -- --
Acquisition related
amortization of
intangibles................. -- 1 1 1 2 1 1
------- ------- ------- ------- ------- ------- -------
Total operating expenses.... 80 58 51 56 58 55 57
------- ------- ------- ------- ------- ------- -------
Operating income................. 2 16 19 19 17 14 18
Other income (expense), net...... -- -- -- -- -- -- (2)
------- ------- ------- ------- ------- ------- -------
Income before income tax
provision...................... 2 16 19 19 17 14 16
Income tax provision............. 7 8 8 8 7 6 9
------- ------- ------- ------- ------- ------- -------
Net (loss) income................ (5)% 8% 11% 11% 10% 8% 7%
======= ======= ======= ======= ======= ======= =======
</TABLE>
In general, the trends identified and discussed previously in the nine
months and annual comparisons apply to the quarterly results of operation, with
the following exceptions:
- Quarter-over-quarter revenue growth from the first quarter to the second
quarter in each of 1998 and 1999 was significantly greater than the
quarter to quarter growth in each of the other quarters. This was a
result of the Oracle fiscal year-end in May, which results in greater
sales of Oracle Retail(TM) solutions in our second fiscal quarter.
- Cost of license and maintenance revenue as a percentage of total revenue
decreased in the third quarter of 1999. In the second quarter of 1999,
we recorded an expense for the purchase of third party software
licenses. In the third quarter of 1999, we were informed by the third
party licensor that the fees payable for these licenses would be less
than the amount expensed. Accordingly, we reduced our liability to the
amount expected to be paid.
- Cost of services and other revenue as a percentage of total revenue was
higher in the third quarter of 1998, the second quarter of 1999 and the
third quarter of 1999 as a result of additional third party costs
incurred to complete large consulting projects in each of these
quarters.
- Research and development expenses increased in the second quarter of
1999 because we accelerated the completion date on particular
development projects by contracting with third party developers, whose
billing rate is higher than our own internal rate. Because these
projects were completed in the second quarter of 1999, we did not incur
similar costs in the third quarter of 1999.
- Other expenses increased in the third quarter of 1999 due to fees paid
for factoring receivable balances.
- Income before income tax provision increased in each of the quarters
shown on a consecutive basis, except for the decrease from the fourth
quarter of 1998 to the first quarter of 1999. The decrease from the
fourth quarter of 1998 to the first quarter of 1999 was primarily
attributable to
35
<PAGE> 39
an increase in research and development expenses resulting from vertical
expansion into the grocery and consumer direct sectors and
acquisition-related amortization expenses.
- Income tax provision in the first quarter of 1998 reflects the
non-deductibility of the acquired in-process research and development
write-off related to the acquisition of Retek Logistics by HNC. The
increase in the income tax provision from the second quarter of 1999 to
the third quarter of 1999 was attributable to an increase in the volume
of foreign sales.
As we begin to enter into software licensing agreements discussed under
"-- Overview" beginning on page 27, we will recognize significantly less revenue
and our associated margins will be lower for several quarters, as compared to
previous quarters and we will incur operating losses during this period.
In October 1999, we granted stock options to our employees, under our 1999
Equity Incentive Plan, to purchase approximately 6,986,000 shares of our common
stock. Of the approximately 6,986,000 options granted, 6,239,000 were granted in
connection with the exchange of options to purchase HNC common stock by our
employees. These options were granted at an exercise price of $10 per share.
Based upon an estimated fair market value of $13 per share for the underlying
common stock, we will recognize compensation expense of approximately $21.0
million over the option vesting period. Due to the terms of the vesting,
compensation will be accelerated in the early years and is expected to result in
the recognition of approximately $1.8 million, $10.0 million, $5.2 million, $2.8
million and $1.1 million of expense for the years ended December 31, 1999, 2000,
2001, 2002 and 2003, respectively.
In November 1999, the Company granted stock options to certain directors
under our 1999 Equity Incentive Plan and our 1999 Directors Stock Option Plan to
purchase 100,000 shares of our common stock. Based on an estimated fair market
value of $13 per share for the underlying common stock, we will recognize
compensation expense of $46,000, $238,000 and $17,000 for the years ended
December 31, 1999, 2000 and 2001, respectively.
We have been successful in recruiting employees in all functional areas in
order to support the acquisition of new customers and the ongoing care for our
existing customer base. This staffing growth has been the key component of the
quarterly operating expense growth, and will be a significant component of our
future growth potential.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations to date primarily through funding from HNC in
the form of intercompany advances. At September 30, 1999, the cash balance was
$499,000.
Net cash provided by operating activities was $734,000 in 1996, $3.8
million in 1997, $885,000 in 1998 and $183,000 for the nine months ended
September 30, 1999. Sources of cash for each period resulted primarily from net
income generated in those periods. Uses of cash during these periods were
principally from increases in accounts receivable, which were partially offset
by an increase in the bad debt provision in 1998. This increase in bad debt
provision was primarily attributable to the increase in accounts receivable due
to increased sales volume and reserving for specific customer accounts. During
1998, we increased the provision for doubtful accounts by $450,000 for a
customer that declared bankruptcy and $250,000 for a customer that had financial
difficulties due to political unrest in its primary country of operation. During
1999, we increased the provision for doubtful accounts by $1.2 million for a
customer that was unwilling to pay amounts due.
Net cash used in investing activities was $281,000 in 1996, $3.1 million in
1997, $2.4 million in 1998 and $3.7 million for the nine months ended September
30, 1999. The uses of cash during these periods, except for the cash provided
from the Retek Inc. acquisition in 1998, were attributable to the acquisition of
capital assets, primarily computer equipment and leasehold improvements.
Net cash provided by financing activities was $486,000 in 1996 and $294,000
in 1997. Net cash used by financing activities was $547,000 in 1998. Net cash
provided by financing activities was $3.6 million for
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<PAGE> 40
the nine months ended September 30, 1999. Net cash provided by financing
activities included $1.5 million in debt repayments and $2.0 million in
borrowings from HNC in 1996 and $5.5 million in borrowings from HNC and $5.2
million in payments to HNC in 1997. Net cash used by financing activities
included $41.7 million in borrowings from HNC and $42.3 million in payments to
HNC in 1998. Net cash provided by financing activities included $46.9 million in
borrowings from HNC and $43.3 million in payments to HNC for the nine months
ended September 30, 1999. Beginning in December 1997, HNC implemented a cash
management policy that all cash balances are transferred daily from all of HNC's
subsidiaries, including us, into a centralized cash management account at HNC.
The financing activities with HNC include the borrowings and payments from these
cash management activities in 1997, 1998 and the nine months ended September 30,
1999.
Deferred revenue consists principally of the unrecognized portion of
revenue received under maintenance service agreements. This revenue is
recognized ratably over the term of the service agreement. Deferred revenue was
$2.6 million at September 30, 1999. Starting in the fourth quarter 1999, we
intend to enter into software licensing agreements with revised terms which will
result in increases in deferred revenue for sales of software products with
technical advisory services.
We believe that the net proceeds from this offering, less the payment of
intercompany debt to HNC, which was approximately $9.5 million as of September
30, 1999, together with our current cash and cash equivalents and net cash
provided by operating activities, will be sufficient to meet our working capital
and capital expenditure requirements for at least the next 12 months. As a
result, HNC will no longer be a source of funding for operating activities.
Management intends to invest our cash in excess of current operating
requirements in short-term, interest-bearing, investment-grade securities.
A portion of our cash could also be used to acquire or invest in
complementary businesses or products or otherwise to obtain the right to use
complementary technologies or data. We regularly evaluate, in the ordinary
course of business, potential acquisitions of such businesses, products,
technologies or data. On October 29, 1999, Retek Information Systems completed
the purchase of all the outstanding capital stock of WebTrak Limited. WebTrak
owns the WebTrak Critical Path and Portfolio Private Label products that we
currently distribute. In connection with the purchase of WebTrak, Retek
Information Systems issued to the former WebTrak shareholders notes, due on
November 26, 1999, in the principal amount of $5.33 million and a note, due on
November 26, 1999, in the principal amount of $2.67 million, which may at the
option of the holder of the note be converted at the time of payment into the
number of shares of our common stock equal to the principal amount of the note
divided by the initial public offering price of our common stock in this
offering. The option to convert this note into shares of our common stock is
conditioned on the completion of the offering and the ability to issue the
shares under applicable securities laws. None of these notes bear interest.
We have no other current plans, agreements or commitments relating to
potential acquisitions, and are not currently engaged in any negotiations with
respect to any other transaction. In addition, our ability to enter into any
acquisition of a business or assets may be limited if the distribution is
completed by HNC and under the terms of the corporate rights agreement. For
further information regarding these limitations, see "Certain
Transactions -- Separation Agreement -- Covenants and indemnification regarding
the distribution" beginning on page 67 and "-- Corporate Rights
Agreement -- Corporate governance" beginning on page 69.
Pursuant to an agreement between HNC and us, until two years, and possibly
longer, after the distribution, our ability to issue common stock in connection
with acquisitions, offerings or otherwise will be limited.
37
<PAGE> 41
YEAR 2000 COMPLIANCE
Background of Year 2000 Issues
Many currently installed computer and communications systems and software
products are unable to distinguish 21st century dates from 20th century dates.
This situation could result in system failures or miscalculations causing
disruptions in the operations of any business. As a result, many companies'
software and computer and communications systems may need to be upgraded or
replaced to comply with these Year 2000 requirements.
Customer Representations and Warranties
Since September 1997, we have generally represented and warranted to our
customers in our software license agreements that the occurrence of the date
January 1, 2000 and any related leap-year issues will not cause our products to
fail to operate properly. In some cases, this warranty includes representations
regarding the ability of our product to store, display, calculate, compute and
otherwise process date-related data. Our warranty generally applies only to our
products and excludes failures resulting from the combination of our products
with other software or hardware or from the use of our software in a manner not
in accordance with the related documentation. If we breach this warranty,
remedies in most cases may include commercially reasonable efforts to replace
the software and to advise the customer how to achieve substantially the same
functionality through different procedures, as well as payment of monetary
damages.
Our Product Testing and Licensing
We have tested all of our software for Year 2000 compliance. We derived our
testing method from our review and analysis of the Year 2000 testing practices
of other software vendors, relevant industry Year 2000 compliance standards and
the specific functionality and operating environment of our products. The tests
are run on all supported platforms for each release and include testing for date
calculation and internal storage of date information with test numbers starting
in 1999 and going over the Year 2000 boundary. Based on these tests, we believe
our products to be Year 2000 compliant with respect to date calculations and
internal storage of date information.
Interaction of our Products with Third-Party Software
Our products contain, operate with and depend on third party code that we
may not be able to independently verify is Year 2000 compliant. The majority of
our products interface with and depend on Oracle's development tools. Oracle has
indicated that the version of their products on which current versions of our
software solutions depend is Year 2000 compliant, but Oracle has made no similar
statement regarding earlier versions of its products. Our software solutions
also contain and depend on software licensed to us by Lucent, MicroStrategy and
HNC. Each of these companies has made, either orally to us or to the public
generally, representations that its licensed code is Year 2000 compliant. We
have been able to verify, in connection with Year 2000 compliance testing of our
products, the validity of these representations. We will not purchase software
from third parties who do not provide adequate assurances regarding their Year
2000 compliance. Finally, our products also interact with external sources,
including other software programs and operating systems, which may not be Year
2000 compliant or which may not provide date data to our products in a manner
that is Year 2000 compliant. Any interaction with third-party software that is
not Year 2000 compliant could cause our products to fail to properly operate or
to properly process date information.
Our Internal Systems
Although we do not have a formal contingency plan to address Year 2000
issues, we have assessed our internal risks associated with the Year 2000 issue
and concluded that these are minimal. We have inventoried our internal software
and hardware systems, as well as products and services provided by third-party
vendors. These systems include those related to product delivery, customer
service, internal and
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<PAGE> 42
external communications, accounting and payroll, which we consider critical
areas of our business. We have obtained vendor certification for the majority of
our third-party systems and have developed a detailed risk assessment and action
plan that includes testing of both critical systems and systems for which no
certification has been obtained.
Costs of Addressing Year 2000 Compliance
To date, our costs to address Year 2000 compliance have not been
significant. Based on our preliminary evaluations, we do not believe we will
incur significant operating expenses or be required to invest heavily in
computer system improvements to be Year 2000 compliant. We estimate that the
total costs will be less than $100,000. However, significant uncertainty exists
concerning the potential costs and effects associated with Year 2000 compliance.
Any Year 2000 compliance problem experienced by us or our customers could
decrease demand for our products, which could seriously harm our business and
operating results.
Risks of Year 2000 Issues
We are considering potential worst case Year 2000 scenarios that address
issues arising from noncompliance by our customers, suppliers or internal
operating systems. Although our Year 2000 compliance project will strive to
uncover significant noncompliance issues, in the worst case not all Year 2000
problems may be uncovered by the Year 2000, which would harm our business.
However, we believe that our most probable worst case scenario is more likely to
arise from our customers' and vendors' inability to become Year 2000 compliant
than from our failure to bring our products into compliance. As a result, our
supply chain and revenue could be harmed.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"), which is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. This statement establishes a new
model for accounting for derivatives and hedging activities. Under FAS 133, all
derivatives must be recognized as assets and liabilities and measured at fair
value. In July 1999, the FASB issued Statement of Accounting Standards No. 137
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133," which defers the effective date to
all fiscal quarters of fiscal years beginning after June 15, 2000. The adoption
of FAS 133 is not expected to have a significant impact on our combined
financial position or results of operations.
In January 1999, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-9 ("SOP 98-9"), "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." This SOP
retains the limitations of SOP 97-2 on what constitutes vendor-specific
objective evidence of fair value. SOP 98-9 will be effective for transactions
entered into in fiscal years beginning after March 15, 1999. The adoption of SOP
98-9 is not expected to have a significant impact on our combined financial
position or results of operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The following discusses our exposure to market risk related to changes in
interest rates, foreign currency exchange rates and equity prices.
Interest Rate Risk
At September 30, 1999, we had $499,000 in cash and cash equivalents, which
consisted entirely of cash operating accounts. A decrease in market rates of
interest would have no material effect on the value of these assets. We have no
short- or long-term debt, therefore, an increase in market rates would not
directly affect our financial results.
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Foreign Currency Exchange Rate Risk
We develop products in the United States and sell in North America, Asia
and Europe. As a result, our financial results could be affected by various
factors, including changes in foreign currency exchange rates or weak economic
conditions in foreign markets. Our foreign currency risks are mitigated
principally by contracting primarily in US dollars and maintaining only nominal
foreign currency cash balances. Working funds necessary to facilitate the
short-term operations of our subsidiaries are kept in local currencies in which
they do business, with excess funds transferred to our offices in the United
States. Approximately 22% and 15% of our total sales were denominated in
currencies other than the US dollar for the year ended December 31, 1998 and the
nine months ended September 30, 1999.
Equity Price Risk
We do not own any equity investments. Therefore, we are not currently
exposed to any direct equity price risk.
Impact of European Monetary Conversion
We are aware of the issues associated with the changes in Europe resulting
from the formation of a European economic and monetary union, or EMU. One change
resulting from this union required EMU member states to irrevocably fix their
respective currencies to a new currency, the euro, as of January 1, 1999, at
which date the euro became a functional legal currency of these countries.
Through December 31, 2002, business in the EMU member states will be conducted
in both the existing national currency, such as the French franc or the Deutsche
mark, and the euro. As a result, companies operating or conducting business in
EMU member states will need to ensure that their financial and other software
systems are capable of processing transactions and properly handling these
currencies, including the euro. We are still assessing the impact that
conversion to the euro will have on our internal systems, the sale of our
solutions and the European and global economies. We will take appropriate
corrective actions based on the results of our assessment. We have not yet
determined the cost related to addressing this issue although we do not expect
these costs to be significant.
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BUSINESS
RETEK OVERVIEW
We provide web-based, business-to-business software solutions for retailers
and their trading partners. Our software offers a retail focused solution that
incorporates technology that can predict customer demand and behavior, which we
refer to as predictive technology. Our software solutions enable retailers to
use the Internet to communicate and collaborate efficiently with their
suppliers, distributors, wholesalers, logistics providers, brokers,
transportation companies, consolidators and manufacturers. We seek to enhance
the ability of retailers to interact with their supply chain by introducing
Retail.com, which we believe will be the first electronic commerce network
providing collaborative business-to-business software solutions to the retail
industry.
We market our software solutions through our direct and indirect sales
channels primarily to retailers who sell to their customers via traditional
retail stores, catalogs and/or web store fronts. To date we have licensed our
solutions across a variety of retail industry sectors to over 100 retailers,
including AnnTaylor, Brooks Brothers, Disney Stores, Eckerd, Hallmark, Internet
Shopping Network and Lancome USA. These listed customers represent a cross
section of our customers that have agreed to purchase at least $100,000 of our
software solutions, but they should not be considered to be actively endorsing
or promoting our solutions. We expect our Retail.com network offering to extend
our target market by making our solutions available to small and mid-sized
retailers and their trading partners.
INDUSTRY BACKGROUND
We believe, based on industry sources, that worldwide retailer-to-consumer
sales exceeded $6.5 trillion in 1997. We estimate that the market for
business-to-business commerce is even larger than retailer-to-customer sales,
and involves, according to industry sources, over 3 million retail, wholesale
and supplier organizations operating in the global marketplace, with sales,
distribution and manufacturing typically involving multiple organizations in
many countries.
We believe the Internet is beginning to change the way this market
operates. Not only does the Internet provide a new distribution channel for
conducting commerce with customers, it provides an even larger opportunity for
retail businesses to communicate and transact commerce with their supply chain.
According to Forrester Research, business-to-business electronic commerce is
expected to grow from $43 billion in 1998 to $1.3 trillion in 2003, accounting
for more than 90% of the dollar value of electronic commerce in the United
States. We believe, based on industry sources, that the market for software
solutions for business-to-business electronic commerce will grow from $171
million in 1998 to $3.1 billion in 2002, a market that we believe, based on
industry sources, will be more than five times the size of the
business-to-consumer electronic commerce software market.
By providing a means for streamlining and making more efficient the process
of collaboration between trading partners, the Internet can facilitate better
decision-making and help reduce the transaction costs of business-to-business
commerce. For example, the Internet enables:
- Real-time collaboration among organizations on production
priorities. This means that retailers can identify today's sale trends
at the point-of-sale and use this information to direct production
priorities in the manufacturing facility. Retailers can use this
information to reduce production of products that are in lesser demand
and eliminate the cost of manufacturing, moving, holding and eventually
marking down the price of these products.
- Collaboration on the design of new products in "virtual design
studios." By giving all parties involved in the design process
real-time input and access to information, the Internet can reduce the
time-to-market for new product offerings and help increase the
likelihood of developing a product offering that is responsive to
specific customer needs.
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- Real-time communication among all members of the supply chain. This
means that new information from one part of the supply chain can be
easily communicated throughout the chain. A delay in a scheduled
delivery can, for instance, be quickly announced and broadly
disseminated. Actions to address the delay can then be quickly
implemented. This real-time communication helps reduce the disruption
and costs that arise when new information must be incorporated among a
diverse and disparate supply chain.
Most large and mid-sized retailers have historically relied upon
custom-built systems, typically developed internally, to manage their
interactions with trading partners. Many of these systems use 1970s mainframe
technology, are not web-based, and do not permit collaboration among members of
the supply chain. More recently, retailers have begun to purchase packaged
solutions with a specific retail industry focus. These products typically lack
the scalability required by larger retailers and are not web-based. Enterprise
resource planning systems have also been adopted on a limited scale. These
complex systems are expensive to implement and maintain, typically lack the
scalability required by retailers, and do not have a specific retail industry
focus. Recently introduced business-to-business electronic commerce products do
not offer specific retail industry focus and typically lack the scalability
required by retailers.
We believe that a market opportunity exists to provide retailers with a
business-to-business software solution that is web-based, collaborative and
designed specifically for the retail industry. This solution should be
easy-to-use, leverage a retailer's existing investments in information
technology and be flexible enough to meet the specific needs of a particular
retail sector, such as fashion, mass merchandise, grocery and drug stores. In
addition, the solution should be highly scalable to process and analyze vast
amounts of customer sales and supplier performance data unique to the retail
industry.
RETEK SOLUTION
We have developed and deployed web-based, business-to-business software
solutions that enable retailers to manage the entire retail supply chain. The
key features of our software solutions are:
- Collaborative retail supply chain. Our solutions electronically link
retailers with their trading partners to facilitate collaboration across
all aspects of the supply chain, from the initial prediction of customer
demand through product design and manufacturing to inventory management.
We believe that by facilitating this collaboration, we will enable
retailers to reduce unnecessary costs and time-to-market, while
increasing product quality and improving margins.
- Robust, predictive and analytic technologies. Our solutions provide
advanced predictive tools to process and analyze the vast amounts of
data available to retailers. Our unique, proprietary technologies enable
retailers to identify patterns in data that may not otherwise be
visible. This information helps our customers reduce inventories,
increase marketing effectiveness and improve customer satisfaction.
- Web-based, easy-to-use and rapidly deployable solutions. Our web-based
software solutions are easy to use and rapidly deployable. Retailers and
their trading partners can access our software from any desktop with a
web interface, and our software can be made available to all employees.
Furthermore, because our software solutions are web-based, their
deployment can reduce capital infrastructure and maintenance costs.
- Highly scalable and retail sector focused. Our web-based solutions are
built specifically to address the unique scalability requirements of the
retail industry. In addition, we have developed solutions that meet the
specific requirements of particular retail sectors, including fashion,
mass merchandise, grocery and drug stores.
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STRATEGY
Our objective is to be the leading provider of web-based,
business-to-business software solutions for retailers and their trading
partners. As the retail supply chain evolves into an electronic network, we seek
to further enable our customers to better manage, organize and drive
efficiencies through this network. Key elements of our strategy include:
- Extending our web-based, business-to-business collaborative software
solution, principally through the introduction of our Retail.com
network. By leveraging our technological advantages, customer base and
retail expertise, we intend to make Retail.com the electronic commerce
network for business-to-business commerce among retailers and their
trading partners. Retail.com is designed to provide a single point of
access for all members of the retail supply chain and offer a broad range
of software solutions that enable a rich and collaborative information
exchange between retailers and their trading partners. This web-based,
retail focused, business-to-business software solution permits
interactive collaboration on the wide range of supply and demand chain
issues that retailers encounter.
- Introducing existing customers to a broader offering of our software
solutions. We intend to expand the use of our products within existing
client accounts. We have sold our software solutions products to more
than 100 retailers, primarily large companies, across a range of retail
sectors. We intend to further penetrate these accounts by cross-selling
our other software solutions or suites of software solutions, all of
which are independently deployable, and by introducing clients to the new
collaborative software solution offering at Retail.com.
- Leveraging our experience in retail. We will continue to leverage our
expertise in providing solutions to retailers. We have developed and
deployed software solutions designed specifically for retailers since our
formation. Our solutions address the need of retailers to process and
track the millions of transactions they complete with their consumers and
to communicate and transact business with their large, geographically
diverse supply chain members. This focus on the retail industry permits
us to constantly update and expand our offerings and to effectively
develop new technologies to address the specific needs of the retail
industry.
- Expanding our relationship with implementation and hosting partners. We
have established relationships with large, international system
integrators and consulting firms, such as Andersen Consulting and KPMG.
These firms provide sales leads, implementation expertise and valuable
third party endorsement of our software solutions. We plan to expand
these relationships to increase our capacity to sell and implement our
solutions. Systems integrators and consulting firms have a strong
influence on software purchasing decisions within large companies, and
they are increasingly seeking web-based collaborative software solutions
that allow them to satisfy their clients' needs more rapidly than they
can through customized product development. In addition, we intend to
continue to offer our software solutions through web-based applications
service providers for retailers that want a third party to host their
solutions. We believe that the application service provider option will
be particularly attractive to pure electronic commerce retail companies,
as well as to small and mid-sized retailers that typically have limited
internal information technology resources.
- Extending our technological leadership. We intend to increase our
technological and product leadership by enhancing our products' core
functionality and high performance analytic features. We believe that our
software solutions, derived from the proprietary analytic and predictive
technology of HNC and enhanced by our research scientists, provide us
with a first mover advantage and an essential basis for the comprehensive
Internet solution of Retail.com. We intend to continue to devote
substantial resources to the development of new and innovative web-based
products for business-to-business retail solutions and to continue to
incorporate emerging web technologies. In addition, by implementing and
actively promoting new industry standards, we intend to facilitate
widespread adoption of our solutions by retailers.
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RETEK PRODUCTS
We have developed and deployed web-based, business-to-business software
solutions that address the entire retail operation. Our software solutions allow
retailers to effectively manage their demand and supply chain processes, getting
the right product in the right place at the right time at the right price. Our
principal software solutions consist of four integrated, but independently
deployable, components, which are accessed via a web browser and can be hosted
by an individual organization or applications service provider.
TRANSACTION SOLUTION
Our Transaction Solution is a core suite of retail business applications
providing comprehensive operational management tools. This suite of software
solutions provides the foundation of operational support and process execution
across the retail enterprise, with the scalability needed to support the
mission-critical operations of many of the world's large retailers. The
web-based design of these solutions helps reduce the cost of supporting store
employees, while improving customer service. In addition, our Transaction
Solution is designed to ensure the integrity of the data used by our decision
support and predictive solutions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
PRODUCTS FEATURES
<S> <C>
- ----------------------------------------------------------------------------------------------
Retek Merchandising System - Provides the core inventory control and merchandise
management functions that support the retail process
Retek Trade Management - Enables retailers to manage the global import process
Retek Distribution Management - Automates the entire warehousing process
Retek Store Operations - Electronically links store employees to corporate data
through radio-frequency hand-held devices and high-speed
intranets
- ----------------------------------------------------------------------------------------------
</TABLE>
DECISION SUPPORT SOLUTION
Our Decision Support Solution is a suite of job-specific data analysis and
exception management tools. This suite of software solutions supports flexible,
multidimensional access to built-in, retail-specific performance measures.
Retailers can analyze large volumes of customer sales and supplier performance
data by using the packaged data warehouse software, which allows rapid
deployment and return on investment. This suite of solutions generates
rule-based reports that highlight unusual or novel information, permitting
retailers to develop business solutions quickly.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
PRODUCTS FEATURES
<S> <C>
- ----------------------------------------------------------------------------------------------
Retek Data Warehouse - Provides flexible, job-specific tools to assist retailers
in utilizing and analyzing their data to effectively
manage their business and share key information with
suppliers
Active Retail Intelligence - Generates and distributes rule-based exception reports
and enables responses, including automated responses, to
the exceptions to produce rapid resolution of performance
problems
- ----------------------------------------------------------------------------------------------
</TABLE>
PREDICTIVE SOLUTION
Our Predictive Solution is a suite of predictive technologies designed to
analyze the huge volume of customer sales and supplier performance data,
optimizing the demand and supply chains to minimize inventory costs and maximize
sales. By applying advanced algorithms to the mass of data processed by
retailers each day, our Predictive Solution is able to identify high value
information which supports one-to-one customer marketing, helps manage customer
relationships and optimize supply chain management.
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Analysis of the combinations of products bought in each retail customer
transaction can assist retailers in identifying opportunities for increasing
sales and the effectiveness of promotions and reducing the cost of mark-downs
and unnecessary inventory.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
PRODUCTS FEATURES
<S> <C>
- ----------------------------------------------------------------------------------------------
Retek Behavior Profiler - Enables retailers to cluster and segment their customer
and market basket data, uncovering meaningful and
valuable relationships between products and customers
Retek Demand Forecasting - Moves beyond traditional time-series techniques to tie
events and causal factors, such as promotions, to daily
forecasts of individual product demand at each store or
selling channel
Retek Replenishment - Uses optimization and simulation techniques to set up and
Optimization maintain efficient inventory replenishment systems
- ----------------------------------------------------------------------------------------------
</TABLE>
BUSINESS-TO-BUSINESS COLLABORATIVE SOLUTION
Our Business-to-Business Collaborative Solution is a suite of software
solutions that supports specific retail business processes and that will be
provided on Retail.com, a business-to-business electronic commerce network that
we began operating on September 26, 1999. We believe that Retail.com will be the
first electronic commerce network for the retail trading community. The network
is designed to provide a single point of access for all members of the retail
supply chain and offer a broad range of software solutions that enable a rich
and collaborative information exchange between retailers and their trading
partners.
Our Retail.com solution is designed to allow organizations to increase the
speed and effectiveness of complex processes by providing a new collaborative
approach to traditional retail challenges. We currently offer critical path and
event tracking software solutions to all members of our Retail.com network. We
intend to launch additional software solutions and new services on our
Retail.com network, including retail specific news services and communication
forums to facilitate the exchange of information among retailers and their
trading partners. These additional software solutions and services are designed
to increase revenue as well as the utility and attractiveness to retailers of
the Retail.com network. Using this solution, which is available for immediate
use with no implementation, support or hardware costs, retailers can quickly
improve performance and reduce costs.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
PRODUCTS FEATURES
<S> <C>
- ----------------------------------------------------------------------------------------------
WebTrak Critical Path - Enables users to publish and share a critical path on the
Internet, effectively shortening time scales and reducing
costs
Portfolio Private Label - Allows web-based collaboration to improve the new product
design and development process
- ----------------------------------------------------------------------------------------------
</TABLE>
RETEK SERVICES
We provide our customers with consulting and technical support or
maintenance services.
- Consulting services consist primarily of technical and implementation
services, customer sponsored research and development and customization
of our products for a customer's specific needs. These services are
customarily billed at a fixed daily rate plus out-of-pocket expenses. We
have vendor-specific objective evidence of fair values for these
consulting services and recognize revenue as these services are
performed.
- Technical support or maintenance services consist primarily of customer
support services after implementation of our solutions. Revenue from
technical support or maintenance services is recognized on a
straight-line basis over the contract period.
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Starting in the fourth quarter of 1999, we will also provide strategic technical
advisory services after the delivery of the product. By providing project
management level support to our customers in their dealings with third party
integrators, these strategic technical advisory services are designed to help
our customers exploit the full value and functionality of our products. Under
licenses where these strategic technical advisory services are provided, license
fee and services revenues will be recognized as these services are performed
over the contract period.
Our services range from technical and implementation support to business
benefit realization consulting, which assists retailers in utilizing our
software solutions to optimize their potential benefits. We offer high-quality,
timely, technical support to customers via phone, e-mail and the Internet.
Additionally, we publish online versions or manuals, release notes and updates
to existing documentation. We provide a number of training programs in the
United States. Courses cover topics such as technical architecture, business use
of the merchandizing functionality and development standards and methodology.
CUSTOMERS
We market our software solutions primarily to retailers who sell to their
customers via traditional retail stores, catalogs and/or web store fronts.
Historically, we have focused on organizations with gross sales in excess of
$500 million a year. We market across all formats of retailing, including
fashion, department stores, catalog and consumer direct, specialty retailers,
mass merchandise retailers and grocery, drug and convenience stores. We expect
the recent launch of our Retail.com network to extend our target market,
allowing small and mid-sized retailers and suppliers of all sizes to take
advantage of our solutions.
The following is a representative list of companies that have agreed to
purchase at least $100,000 of our products and services. We do not intend the
identification of these customers to imply that these customers are actively
endorsing or promoting our products.
<TABLE>
<S> <C>
FASHION RETAILERS SPECIALTY RETAILERS
AnnTaylor Chapters
BHS Container Store
Brooks Brothers Cracker Barrel
Mothercare Disney Stores
Reitmans Hallmark
Stage Stores Lancome USA
Zale Corporation
DEPARTMENT STORES MASS MERCHANDISE RETAILERS
El Palacio Family Dollar
Hudson's Bay Company Pamida
Selfridges ShopKo
GROCERY, DRUG & CONVENIENCE STORES CATALOG AND CONSUMER DIRECT
Circle K, USA Home Shopping Network
Eckerd Internet Shopping Network
Matahari Littlewoods
The Northwest Company
NTUC Fairprice
RiteAid
</TABLE>
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SELECTED CUSTOMER APPLICATIONS
The following examples span the full range of our software solutions and
illustrate how organizations are relying on us to provide high-value retail
solutions for their businesses.
<TABLE>
<CAPTION>
CUSTOMER APPLICATIONS
<S> <C>
Lancome USA Lancome USA, a leader in prestige perfume, skin care and
cosmetics, has been using Retek Demand Forecasting to
optimize the allocation of its 800 stock keeping units,
commonly known as SKUs, in the stores on its Vendor Managed
Inventory program. Since the deployment of this application,
Lancome estimates that it has been able to drastically
decrease out-of-stock items from levels as high as 12% down
to 2.5% (some key products have been reduced to below 1%),
driving up sales and customer service, without increasing
overall inventory cost.
Home Shopping Network Home Shopping Network pioneered the electronic retailing
industry in 1977. Its live 24-hour programming reaches 70
million U.S. households through broadcast, cable and
satellite dishes. HSN continued its tradition of innovation
in 1998 with the launch of Short Shopping, a division which
produces direct selling commercials for various broadcasting
partners. HSN holds interests in shopping channels in
Germany and Japan; and produces Home Shopping en Espanol, a
joint venture with Univision. HSN has been designated the
official electronic retailer for Times Square 2000. HSN has
annual revenues in excess of $1 billion. With the
implementation of the Retek Merchandising System, HSN
expects to attain tangible benefits by standardizing the
streamlining business processes across divisions and by
reducing lead times in their supply chain.
Reitmans Canada-based women's wear retailer Reitmans (Canada), Ltd.
watched its profits increase after undergoing a major
systems overhaul, including implementing the Retek
Merchandising System. In the first six months of 1999,
Reitmans saw a profit of $17.5 million, as opposed to profit
of $9.7 million for the same period the year before.
Comparable store sales have increased as well. According to
President Jeremy Reitman, "significant increases in
comparable store sales, gross margin and operating profit
were achieved in each operating division."
Chapters Chapters, Inc., Canada's largest book retailer, began using
the Retek Merchandising System in 1997. Chapters now has 250
traditional Coles and SmithBooks mall stores, 63 Chapters
superstores and also manages several campus bookstores. With
the implementation of our solutions, Chapters moved from two
platforms to one integrated system. In addition to the
benefits of one point of data entry for all stores,
according to Chapters, it has also attained improved
in-stock position and greater efficiencies in inventory
management with our solution.
</TABLE>
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<TABLE>
<CAPTION>
CUSTOMER APPLICATIONS
<S> <C>
Ann Taylor Ann Taylor, a U.S. fashion retailer with annual revenues of
$780 million and 360 stores, licensed the Retek
Merchandising System, Retek Demand Forecasting, Retek Active
Retail Intelligence, Retek Trade Management and Retek
Distribution Management. "We chose Retek because we wanted
an integrated core merchandising solution," says Wollaston
Morin, Ann Taylor's Senior Vice President of Information
Services. "We currently have several systems patched
together so we really wanted a solution where all the pieces
fit together seamlessly. Retek will give us this smooth
integration, we looked at a number of vendors, and felt that
Retek was the best fit."
</TABLE>
TECHNOLOGY CHARACTERISTICS
We seek to develop innovative software solutions by combining our retail
industry and application knowledge and our strategy of partnering with
technology market leaders. Although we make extensive use of a broad range of
technologies, we take advantage of two key technologies:
Web Architecture. The Oracle toolset provides us with a web-based,
scalable foundation for our software solutions. By leveraging our
applications framework into a unified architecture, we are able to focus on
creating additional business functionality in our solutions, rather than
building and maintaining complex infrastructure code. As a global alliance
partner of Oracle, our core development team works very closely with the
Oracle technology group to take advantage of the latest features of the 8i
database, the developer toolset, and the advances being driven by the
Oracle mobile computing group. In addition, our use of Sun Microsystems'
Java programming language allows us to deliver software that is portable
and efficient, as well as easy to internationalize and reconfigure.
Predictive Algorithms. Our team of research scientists has expanded and
tailored HNC's predictive technologies to fit the retail world. These
technologies are able to analyze vast amounts of retail data, recognize and
model complicated and sometimes subtle patterns, and apply these models to
predicting and understanding the retail environment. Though the mathematics
behind the predictive algorithms may be quite complex, software solutions
that use them are carefully crafted to fit seamlessly into the retailers'
business processes. These solutions enable retailers to optimize their
supply chain, target store assortments, maximize advertising payback,
minimize mark-downs and raise customer loyalty and satisfaction. The
predictive algorithms we rely on to achieve these results include:
- Hybrid Forecasting Models. The solution to many retail problems relies
on good forecasting. Forecasting enhances such functions as store and
warehouse replenishment, promotional planning, supplier collaboration,
mark-down reduction, merchandise and assortment planning and labor
scheduling. Our hybrid forecasting models were designed specifically for
retail problems, and use hybrids of standard techniques, as well as
internally developed methods. The models use hierarchical time series
techniques, filtering techniques, regression-based causal forecasting,
and exception management to provide a platform that may be applied to
all of the previous functions.
- Context Vectors. Context vectors can automatically categorize
unstructured information, providing insight from a previously
inaccessible data source. This allows our solutions to extract different
dimensions from a retailer's data, allowing actionable information to be
unlocked in the key areas of store profiling, single-customer
transaction analysis and customer segmentation.
- Simulation. Simulations are used to model systems that are too complex
for basic mathematical algorithms. We use simulation to optimize store
and warehouse replenishment. Unlike textbook generalizations and
assumptions, the modeling provided by our solutions simulates the entire
replenishment process, enabling us to optimize the variables that affect
the replenishment process.
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In addition, we license the ACUMATE component software from Lucent to serve
as a foundation for Retek Demand Forecasting and the DSS Web software from
MicroStrategy to serve as a user-interface for Retek Data Warehouse. In each
case, this third party software was selected by us because it has properties
that are particularly appropriate to the function of the specific solution into
which we have integrated it. Each of these licenses is non-exclusive, world-wide
and royalty-based. Each license has a term of one year and renews automatically
unless notice of termination is given by either party. The royalty we paid
Lucent and MicroStrategy under these licenses was less than 5% and 2% of our
total revenue in each of the 1998 fiscal year and the nine months ended
September 30, 1999.
STRATEGIC ALLIANCES
We have worked with Oracle to establish Oracle Retail(TM), which provides a
single source of technology products, implementation services and support to
target the world's largest retailers. Oracle Retail(TM) combines our solutions
with Oracle's financial applications to provide customers with a scalable
web-based solution for the retail industry worldwide. Oracle has established a
dedicated sales team of approximately 30 employees to sell and market these
products worldwide, in addition to the thousands of general sales
representatives at Oracle who are knowledgeable about Oracle Retail(TM).
We have developed strategic relationships with various system integrators
who assist us with sales lead generation by recommending that their clients
purchase our software solutions. Additionally, these system integrators provide
a range of services to our customers, including project implementation services
and first-line technical support. We have certified and trained approximately
650 consultants from our system integrators for the implementation and operation
of our solutions. Some of our systems integration partners include Andersen
Consulting, Deloitte & Touche, IBM, and KPMG.
In addition to providing implementation and support services for our
software solutions, Andersen Consulting has dedicated approximately 150
full-time consultants to help us in research and development and custom
modifications. This allows us to rapidly expand our research and development
efforts without the costs associated with internally hiring additional staff.
SALES, MARKETING AND DISTRIBUTION
We market and sell our software solutions worldwide through a combination
of a direct sales force, resellers and distributors. Our worldwide direct sales,
marketing and business development organizations consisted of 74 individuals as
of September 30, 1999.
Our sales, marketing and distribution approaches are designed to help
customers understand both the business and technical benefits of our software
solutions. We conduct a variety of marketing programs worldwide to educate our
target market, create awareness and generate leads for our solutions. To achieve
these goals, we have engaged in marketing activities including e-business
seminars, direct mailings, print and online advertising campaigns and trade
shows. These programs are targeted at key information technology executives and
business users, as well as chief information officers and other senior
executives.
Markets outside the United States are currently served by our direct sales
offices in the United Kingdom, France, Germany, Australia, Japan and South
Africa. In addition, we have established distribution relationships with CTC and
KPMG, which distribute our software solutions in Japan and Australia,
respectively.
RESEARCH AND DEVELOPMENT
Our research and development group has been a critical component of our
overall success. We believe that we have built a reputation for delivering on
our solution commitments in a timely manner. As of September 30, 1999, the
research and development group was comprised of 184 individuals in Cincinnati,
Atlanta, and Minneapolis. In addition, we have developed close alliances with a
number of consulting
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companies to provide additional staffing. These relationships allow us to
increase our development capacity as quickly as necessary to address new market
and product demand.
The majority of our research and development group is organized around
product offerings. Each of these groups is responsible for the product
management processes, strategy and release path, delivery, and support of their
respective applications. In addition to these groups, a centralized enterprise
team within research and development is responsible for maintaining consistency
across these products teams with respect to quality assurance and testing
processes, documentation, application architecture, and methodology.
The success of the research and development group is based on a consistent
and well-defined development methodology. This methodology enables the delivery
of high-quality products in a timely and predictable manner. It involves the
traditional checkpoints of development processes such as business requirements,
functional and technical specifications, unit, string and integration test
plans, and regression analysis. In addition, we use a highly interactive review
process to engage future users of the product in the product release cycle
through iterative prototypes to ensure the application design goal is met.
In addition to the predictable delivery cycles, speed to market is critical
to our success. We believe that we have effectively used build, buy, and partner
strategies over the past several years to expand our solution offering. The key
in using each of these strategies is the consistency in the underlying
technologies and an overall application architecture that allows modular design
and development.
Research and development expenses were $9.5 million in 1997, $12.9 million
in 1998 and $14.7 million in the nine months ended September 30, 1999. We
believe that significant investments in research and development are required to
remain competitive. As a consequence, we intend to continue to increase the
absolute amount of our research and development expenses.
COMPETITION
The market for business-to-business software solutions is new, intensely
competitive and rapidly evolving. We expect competition to continue to increase
both from existing competitors and new market entrants. We encounter current
competition from a number of different sources, including such providers of
supply chain software products as SAP, IBM, Manhattan and JDA Software Group,
and, as we develop our global business-to-business electronic commerce network,
we expect to face potential competition from business-to-business electronic
commerce companies, including Ariba, Broadvision, Commerce One and i2
Technologies. We believe that our ability to compete depends on many factors
both within and beyond our control, including:
- the ease of use, performance, features, price and reliability of our
solutions as compared to those of our competitors;
- the timing and market acceptance of new solutions and enhancements to
existing solutions developed by us and our competitors;
- the quality of our customer service; and
- the effectiveness of our sales and marketing efforts.
We believe that we currently compete favorably with respect to these
factors. In particular, we believe that our products are better than those of
our competitors in their ease of use, performance, features and reliability. In
addition, we have in the past introduced new solutions and enhancements to our
existing solutions in a more timely manner than our competitors. Our prices are
generally higher than our competitors reflecting, we believe, the added value of
our software solutions. Because the market for business-to-business software
solutions is new, intensely competitive and rapidly evolving, we cannot assure
you that we will maintain our competitive position against current and potential
competitors, especially those with greater name recognition and greater
financial, marketing and other resources.
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<PAGE> 54
PROPRIETARY RIGHTS AND LICENSING
Our success and ability to compete are dependent in part on our ability to
develop and maintain the proprietary aspects of our technology. We rely on a
combination of trademark, trade secret, and copyright law and contractual
restrictions to protect the proprietary aspects of our technology. We seek to
protect our source code for our software, documentation and other written
materials under trade secret and copyright laws. We license our software under
signed license agreements, which impose restrictions on the licensee's ability
to utilize the software. Finally, we seek to avoid disclosure of our
intellectual property by requiring employees and consultants with access to our
proprietary information to execute confidentiality agreements with us and by
restricting access to our source code.
We rely on technology that we license from third parties, including
software that is integrated with internally developed software and used in our
line of products to perform key functions. For example, we license the ACUMATE
component software from Lucent and the DSS Web from MicroStrategy. In addition,
we will enter into a technology license agreement with HNC, giving us a license
to specified HNC predictive technology. If we are unable to continue to license
any of this software, we will face delays in releases of our software until
equivalent technology can be identified, licensed or developed, and integrated
into our current product. These delays, if they occur, could seriously harm our
business.
There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible that
in the future third parties may claim that we or our current or potential future
software solutions infringe on their intellectual property. We expect that
software product developers and providers of electronic commerce products will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of products in
different industry segments overlaps. Any claims, with or without merit, could
be time-consuming, result in costly litigation, cause product shipment delays or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on terms acceptable to us or at
all, which could seriously harm our business.
LEGAL PROCEEDINGS
From time to time we have been subject to legal proceedings and claims in
the ordinary course of business, although we are not currently involved in any
material legal proceedings.
EMPLOYEES
At September 30, 1999, we had a total of 369 employees, 337 of whom were
based in North America and 32 of whom were based in Europe, Asia, Australia and
other countries. Of the total, 184 were in research and development, 74 were
engaged in sales, marketing and business development, 76 were engaged in
consulting services, customer support and training, and 35 were in
administration and finance. None of our employees are subject to a collective
bargaining agreement, and we believe that our relations with our employees are
good.
FACILITIES
Our principal administrative, sales, marketing, and research and
development facility occupies approximately 69,971 square feet in Minneapolis,
Minnesota under a lease that expires on August 31, 2004. We recently entered
into a lease for approximately 130,665 square feet of additional space in
Minneapolis, Minnesota. This lease will begin on October 1, 2001 and expires on
March 31, 2014. This lease also grants to us two options to lease approximately
87,110 square feet of additional space, should we require it, over the term of
the lease. We also have regional offices located in Atlanta, Georgia, Chicago,
Illinois, Cincinnati, Ohio, Australia, France and the United Kingdom. We believe
that our existing facilities are adequate for our current needs and that the new
lease that we recently entered into will ensure that we have sufficient
additional space to meet our future requirements.
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<PAGE> 55
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, and their ages as of September 30,
1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John Buchanan........................ 42 Chairman, Chief Executive Officer and Director
Gordon Masson........................ 44 President
Jeremy P.M. Thomas................... 57 President, Retail.com
John L. Goedert...................... 34 Senior Vice President, Research & Development
Gregory A. Effertz................... 37 Vice President, Finance & Administration, Chief
Financial Officer, Treasurer, and Secretary
David A. J. Bagley................... 34 Vice President, Product Strategy & Marketing
Victor Holysh........................ 40 Vice President, Services
Duncan B. Angove..................... 33 Vice President, E-Business
Ward Carey........................... 34 Director
Charles H. Gaylord................... 54 Director
Alex Way Hart........................ 59 Director
N. Ross Buckenham.................... 42 Director
Glen A. Terbeek...................... 57 Director
Stephen E. Watson.................... 54 Director
</TABLE>
John Buchanan joined us in May 1995 and is currently our chairman and chief
executive officer. From October 1991 to May 1995, he served as president of
Transpacific Information Systems Inc., a technology investment company
principally involved in introducing internationally developed software products
into North America. Mr. Buchanan also serves on the board of directors of
Mediconsult.com, Inc., a company that provides patient oriented healthcare
information and services on the Internet. Mr. Buchanan holds a Bachelor of
Commerce degree in Accounting and Computer Systems from the University of Otago,
New Zealand.
Gordon Masson has been our president since July 1999. He served as our
senior vice president, sales since August 1995. Prior to joining Retek from 1983
to 1995, he was with Comshare, Inc., a decision support software company,
serving most recently as vice president. Mr. Masson holds a BACC degree in
Accounting and Law from Glasgow University and he is a certified chartered
accountant.
Jeremy P.M. Thomas joined us in October 1999 as president, Retail.com. From
August 1997 to October 1999, Mr. Thomas served as managing director and a
director of WebTrak Limited, a company that specializes in developing Internet
solutions for retailers and which we acquired in October 1999. Mr. Thomas served
as a director of TSL Limited, a company that specializes in software testing
from October 1997 to October 1998, and as TSL's chairman from January 1998 to
October 1998. From January 1994 to January 1998, Mr. Thomas served as a director
of Drawitem Limited, a company that specializes in software products and
services. During the period from January 1994 to July 1997, Mr. Thomas also
served as chief executive officer and a director of Workspace Corporation, a
corporation that develops collaborative software. Mr. Thomas holds a Bachelor of
Science degree in Physics from the University of Southampton.
John L. Goedert joined us in June 1996 as our senior vice president,
research and development. From 1987 to 1996, Mr. Goedert was with Andersen
Consulting's Consumer Products Practice, specifically in retail and
distribution, serving most recently as senior manager. Mr. Goedert holds a
Bachelor of Business Administration in Finance from Iowa State University.
Gregory A. Effertz joined us in March 1997 as our vice president, finance
and administration and chief financial officer. From 1988 to 1997, Mr. Effertz
was with American Paging, Inc., a paging service provider, serving most recently
as executive director, sales and marketing, corporate controller and
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<PAGE> 56
treasurer. Mr. Effertz is a certified public accountant certificate holder and
holds a Bachelor of Business Administration in Accounting and Management
Information Systems from the University of Wisconsin -- Eau Claire.
David A. J. Bagley joined us in May 1997 as vice president, services and is
currently vice president, product strategy and marketing. From 1989 to 1997, Mr.
Bagley was with Andersen Consulting's Consumer Products Practice, serving most
recently as senior manager. Mr. Bagley holds a Master of Arts in Classics from
St. Anne's College, Oxford University.
Victor Holysh joined us in June 1998 as our vice president, services. Prior
to joining us, Mr. Holysh was a partner at Sierra Systems Consultants, Inc. in
Toronto, Canada, a systems integration and implementation firm. From 1988 to
1996, Mr. Holysh was with SFG Technologies Inc., a software and related services
company for local government applications, where he served in several
capacities, including chief financial officer and managing director of SFG New
Zealand. Mr. Holysh holds a Bachelor of Science in Computer Science and a
Masters of Business Administration from the University of Toronto. He is a
member of the Canadian Institute of Chartered Accountants and is a Certified
Management Consultant.
Duncan B. Angove joined us in September 1997 and is currently vice
president, e-business. Prior to joining Retek from 1994 to 1997, he served as a
consultant with Andersen Consulting's Consumer Products Practice, specifically
in retail and distribution, and from 1991 to 1994 as information technology
manager of TaiTai Retail Import Export, a furniture import/export company. Mr.
Angove holds a BSC Economics degree from the University College London.
Ward Carey, age 34. Mr. Carey has served as vice president of corporate
marketing of HNC since March 1999. Prior to joining HNC, from July 1998 to March
1999, Mr. Carey was with Credit Suisse First Boston Corporation, a global
investment banking firm, where he served as a charter member of the Technology
Group. From May 1996 and July 1998, Mr. Carey was with Deutsche Bank Securities,
a global investment banking firm, where he served as a charter member of the
Technology Group. From January 1991 to May 1996, Mr. Carey was with BT Alex.
Brown, a financial services company, where he served in several management
positions. Mr. Carey holds a Bachelor of Arts degree in Political Science from
Columbia University, New York.
Charles H. Gaylord, age 54. Mr. Gaylord has served as a director of HNC
since May 1995. Mr. Gaylord is a retired private technology investor. From
December 1993 to September 1994, Mr. Gaylord served as executive vice president
of Intuit Inc., a publicly-held personal and small business finance software
company. From July 1990 to December 1993, he served first as president and chief
executive officer and a director of ChipSoft, Inc., a publisher of tax
preparation software programs, and then as ChipSoft's chairman of the board of
directors and chief executive officer. Prior to July 1990, Mr. Gaylord served as
president of Transworld Oil America, Inc., a petroleum marketing and trading
company. Mr. Gaylord held various senior management positions with the
Transworld Oil International group of companies over a 17-year period and was a
member of the senior management committee and the trading executive committee.
He holds a Bachelor of Science and Master of Science degrees in Aerospace
Engineering from Georgia Institute of Technology and a Masters degree in
Business Administration from Harvard University.
Alex Way Hart, age 59. Mr. Hart has served as a director of HNC since
October 1998. Since February 1998, he has been an independent consultant to the
financial services industry. From August 1996 to February 1998, Mr. Hart served
as chief executive officer of Advanta Corporation, a diversified financial
services company. From March 1994 to August 1996, Mr. Hart served as executive
vice chairman of Advanta. From December 1988 to March 1994, he served as
president and chief executive officer of MasterCard International. Mr. Hart also
serves as a director of Sanchez Computer Associates, Inc., a provider of core
processing and electronic banking software solutions. He holds a Bachelor of
Arts degree in Social Relations from Harvard University and has completed
studies at the Graduate School of Bank
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<PAGE> 57
Marketing at the University of Colorado and the Graduate Program for Data
Processing Management at Harvard Business School.
N. Ross Buckenham, age 42. Mr. Buckenham has served as president of
PageMart Wireless Inc., a wireless messaging company, since November 1997. From
January 1996 to November 1997, Mr. Buckenham served with PageMart in a number of
management positions. Prior to joining PageMart, from 1992 to 1996, Mr.
Buckenham served as president of Touchtone Solutions, Inc., a telecommunications
and interactive voice response software and services company. From 1984 to 1991,
Mr. Buckenham served with Aquanautics Corporation, a developer of oxygen
technologies for applications in the food and defense industries, initially as
vice president of development and then as its president. From 1981 to 1984, Mr.
Buckenham was with Bain & Co., a management consulting company, as senior
consultant to companies in the voice processing, technology, finance and health
care industries. Mr. Buckenham holds a Masters degree in Business Administration
from Harvard University and a Bachelor of Science degree in Chemical Engineering
from Canterbury University, New Zealand.
Glen A. Terbeek, age 57. Mr. Terbeek is currently a consultant with
Breakaway Strategies, Inc., an independent consulting company he founded in
January 1999. From 1965 to December 1998, Mr. Terbeek was with Andersen
Consulting, a management consulting company, where he was most recently a
managing partner of Andersen's Food and Packaged Goods Industry Practice. Mr.
Terbeek holds a Masters degree in Business Administration in quantitative
methods from the University of Michigan and a Bachelor of Arts degree in
Mathematics and Physics from Hope College.
Stephen E. Watson, age 54. Mr. Watson has served as chief executive officer
of Gander Mountain LLC, a specialty retailer of outdoor recreational equipment
and clothing, since November 1997. From March 1994 to November 1997, Mr. Watson
was retired. From 1990 to 1994, Mr. Watson served as a president of Dayton
Hudson Corporation, a general merchandise retailer. Mr. Watson has also served
as a director of Shopko Stores Inc., a chain of retail stores specializing in
discount merchandise, since 1996. Mr. Watson holds a Bachelor of Arts degree in
American History and Literature from Williams College and a Masters degree in
Business Administration from Harvard University.
BOARD OF DIRECTORS
Currently, our board of directors has seven members. These members include
our chairman and chief executive officer, Mr. Buchanan, three individuals who
are currently officers or directors of HNC, Messrs. Carey, Gaylord and Hart, and
three independent directors, Messrs. Buckenham, Terbeek and Watson.
Our amended and restated certificate of incorporation will be filed
immediately before the completion of this offering and will provide for a
classified board of directors consisting of three classes of directors.
Directors in each class will be elected to serve for three year terms and until
their successors are elected or qualified. Each year, the directors of one class
will stand for election as their terms of office expire. To implement the
classified structure, two of our current directors have been elected to one-year
terms, two have been elected to two-year terms and three have been elected to
three-year terms. The terms of office will expire as follows: Messrs. Terbeek
and Watson at the annual meeting of stockholders in 2000, Messrs. Buchanan and
Buckenham at the annual meeting of stockholders in 2001 and Messrs. Carey,
Gaylord and Hart at the annual meeting of stockholders in 2002.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
Our audit committee consists of Messrs. Hart, Terbeek and Watson. The
responsibilities of the audit committee include recommending to the board of
directors the independent public accountants to be selected to conduct the
annual audit of our accounts; reviewing the proposed scope of such audit and
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<PAGE> 58
approving the audit fees to be paid; and reviewing the adequacy and
effectiveness of our internal auditing, accounting and financial controls with
the independent public accountants and our financial and accounting staff.
Compensation Committee
Our compensation committee consists of Messrs. Gaylord and Buckenham. The
compensation committee is responsible for establishing compensation policies
consistent with corporate objectives and stockholder interests. The compensation
committee has responsibility for approving and/or recommending to the board of
directors levels of compensation for our senior executives. The compensation
committee also administers grants under the Company's stock-based and other
performance-based incentive compensation plans and adopts and/or recommends to
the board of directors new plans or changes in compensation programs. The
compensation committee may not include any employee of Retek, HNC or any Retek
subsidiary.
The board of directors may establish other committees to facilitate the
management of Retek.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
All of our common stock is currently owned by HNC, and thus none of our
officers or directors owns any of our common stock. To the extent our directors
and officers own shares of HNC common stock at the time of the distribution, if
it occurs, they will participate in the distribution on the same terms as other
holders of HNC common stock.
The following table sets forth the number of shares of HNC common stock
beneficially owned on September 30, 1999 by each director, each of the executive
officers named in the Summary Compensation Table in the "-- Executive
Compensation" section below, and all of our directors and executive officers as
a group. Except as otherwise noted, the individual director or executive officer
or their family members had sole voting and investment power with respect to
such securities. The address for each listed stockholder is: c/o Retek Inc.,
Midwest Plaza, 801 Nicollet Mall, 11th Floor, Minneapolis, Minnesota 55402. The
total number of shares of HNC common stock outstanding as of September 30, 1999
was 24,406,864.
<TABLE>
<CAPTION>
SHARES OF HNC
BENEFICIALLY OWNED
------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE
------------------------ ------ ----------
<S> <C> <C>
John Buchanan(1)............................................ 63,404 *
Gordon Masson(2)............................................ 32,054 *
John L. Goedert(3).......................................... 36,604 *
David A. J. Bagley(4)....................................... 16,225 *
Gregory A. Effertz(5)....................................... 15,312 *
Ward Carey.................................................. 54,700 *
Charles H. Gaylord(6)....................................... 71,500 *
Alex Way Hart(7)............................................ 10,400 *
N. Ross Buckenham........................................... -- *
Glen A. Terbeek............................................. -- *
Stephen E. Watson........................................... -- *
All directors and executive officers as a group
(14 persons)(8)........................................... 314,387 *
</TABLE>
- -------------------------
* Represents holdings of less than one percent.
(1) Includes 62,500 shares issuable upon exercise of stock options exercisable
within 60 days of September 30, 1999.
(2) Includes 30,625 shares issuable to Mr. Masson upon exercise of stock options
exercisable within 60 days of September 30, 1999, 221 shares beneficially
owned by Michele Hunt Masson, Mr. Masson's
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<PAGE> 59
wife, and 250 shares issuable to Mrs. Hunt Masson upon the exercise of stock
options exercisable within 60 days of September 30, 1999.
(3) Includes 36,022 shares issuable upon exercise of stock options exercisable
within 60 days of September 30, 1999.
(4) Includes 14,500 shares issuable upon exercise of stock options exercisable
within 60 days of September 30, 1999.
(5) Includes 14,500 shares issuable upon exercise of stock options exercisable
within 60 days of September 30, 1999.
(6) Represents 21,500 shares of HNC common stock held of record by the Gaylord
Family Trust UTD 12/31/93, Charles H. Gaylord, Jr. and Lynn M. Gaylord
trustees, and 50,000 shares of HNC common stock subject to options
exercisable within 60 days of September 30, 1999.
(7) Includes 10,000 shares of HNC common stock subject to options exercisable
within 60 days of September 30, 1999.
(8) See notes 1 through 7. Includes 4,000 shares issuable to Mr. Angove upon
exercise of stock options held by Duncan B. Angove within 60 days of
September 30, 1999 and 3,938 shares issuable to his wife, Ms. Jill French,
upon exercise of stock options held by her within 60 days of September 30,
1999. Also includes 6,250 shares issuable upon exercise of stock options
held by Victor Holysh exercisable within 60 days of September 30, 1999.
It is not currently possible to state the expected number of shares of our
common stock that our directors and officers may receive if the distribution
were to occur. As the distribution will occur in the future, if at all, we are
unable to predict the number of shares of our common stock that will be
outstanding at that time. In addition, our directors and executive officers may
hold a materially different number of shares of HNC common stock at the time of
the distribution than they currently hold. Each of these values is necessary to
determine the number of shares of our common stock that would be distributed to
our directors and executive officers.
COMPENSATION COMMITTEE
In the fiscal year ended December 31, 1998, we did not have a compensation
committee or any other committee serving a similar function. Decisions as to the
compensation of our executive officers were made by the compensation committee
or the board of directors of HNC.
DIRECTOR COMPENSATION
Directors who are not employed by us or by HNC and who are not directors of
HNC are referred to as independent directors and will be reimbursed for
reasonable expenses incurred in attending our board of director or committee
meetings. Each of our independent directors was granted options to purchase
25,000 shares of our common stock pursuant to our 1999 Directors Stock Option
Plan (described below) upon their initial election to our board of directors.
Our independent directors will also be granted options to purchase 7,500 shares
of our common stock annually so long as they remain on our board. We have
granted 12,500 options each to two of our directors who are also directors of
HNC under our 1999 Equity Incentive Plan (described below).
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<PAGE> 60
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation for the
fiscal year ended December 31, 1998 paid for services rendered by our chairman
and chief executive officer and our four other highest-paid executive officers
who earned more than $100,000 during the fiscal year ended December 31, 1998. We
collectively refer to these individuals as the named executive officers.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- ------------
NUMBER OF
SECURITIES
SALARY BONUS UNDERLYING
NAME AND PRINCIPAL POSITIONS ($) ($) OPTIONS(1)
- ---------------------------- ---------- --------- ------------
<S> <C> <C> <C>
John Buchanan
Chairman and Chief Executive Officer...................... 200,000 97,500 30,000
Gordon Masson
President................................................. 150,000 170,035 37,500
John L. Goedert
Senior Vice President, Research & Development............. 150,000 90,000 35,000
David A. J. Bagley
Vice President, Product Strategy & Marketing.............. 130,000 85,000 8,000
Gregory A. Effertz
Vice President, Finance & Administration, Chief Financial
Officer, Treasurer and Secretary.......................... 120,000 60,000 8,000
</TABLE>
- -------------------------
(1) This reflects options to acquire shares of HNC common stock. We have offered
our employees the opportunity either to cancel their HNC options which will
be unvested as of March 31, 2000 and receive grants of options to purchase
our common stock or to retain their HNC options. Under the current HNC
option plan, unvested HNC options held by our employees will be canceled at
the date of the distribution, if it occurs, or at any other time that HNC
owns less than 50% of our common stock. The table below sets forth the
number of shares of HNC common stock issuable upon the exercise of HNC stock
options that each named executive officer has been offered the opportunity
to cancel.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING OPTIONS
NAMED EXECUTIVE OFFICER THAT MAY BE CANCELED
----------------------- --------------------
<S> <C>
John Buchanan............................................... 66,500
Gordon Masson............................................... 52,500
John L. Goedert............................................. 48,750
David A. J. Bagley.......................................... 35,250
Gregory A. Effertz.......................................... 30,250
</TABLE>
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HNC STOCK OPTION GRANTS IN FISCAL 1998
The following table sets forth information regarding stock options covering
HNC common stock granted to the named executive officers during the fiscal year
ended December 31, 1998. The dollar amounts under these columns are the result
of calculations at the 5% and 10% rates required by the Securities and Exchange
Commission for the option term and therefore are not intended to and may not
accurately forecast possible future appreciation, if any, of HNC's common stock
price.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
---------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
OPTIONS IN FISCAL PRICE ($ PER EXPIRATION -----------------------
NAME GRANTED YEAR SHARE) DATE 5% ($) 10% ($)
- ---- ----------- ---------- ------------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
John Buchanan..................... 30,000(2) .90 32.00 2/23/08 603,840 1,530,240
Gordon Masson..................... 37,500(2) 1.13 32.00 2/23/08 754,800 1,912,800
John L. Goedert................... 35,000(2) 1.05 32.00 2/23/08 704,480 1,785,280
David A. J. Bagley................ 8,000(2) .24 32.00 2/23/08 161,024 408,064
Gregory A. Effertz................ 8,000(2) .24 32.00 2/23/08 161,024 408,064
</TABLE>
- -------------------------
(1) We will offer our employees the opportunity either to cancel their HNC
options which will be unvested as of March 31, 2000 and receive grants of
options to purchase our common stock or to retain their HNC options. Under
the current HNC option plan, unvested HNC options held by our employees will
be canceled at the date of the distribution, if it occurs, or at any other
time that HNC owns less than 50% of our common stock.
(2) The options became exercisable with respect to one-fourth of the shares
covered thereby on February 23, 1999 and will become exercisable with
respect to one-fourth of the shares covered thereby on each of February 23,
2000, 2001 and 2002.
AGGREGATED HNC OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the named
executive officers concerning option exercises in 1998 and unexercised stock
options to purchase HNC common stock held as of December 31, 1998. The "value
realized" figures are based on the fair market value of HNC stock at the
exercise date, minus the per share exercise price, multiplied by the number of
shares exercised. The "value of unexercised in-the-money options at December 31,
1998" figures in the right-hand column are based on the market value of HNC
stock at December 31, 1998 of $40.438 per share, minus the per share exercise
price, multiplied by the number of shares issuable upon exercise of the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
ACQUIRED ON EXERCISE OPTIONS AT THE-MONEY OPTIONS AT
---------------------------- DECEMBER 31, 1998 DECEMBER 31, 1998($)
VALUE --------------------------- ---------------------------
NAME EXERCISED (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John Buchanan................. 0 0 55,000 85,000 546,590 799,730
Gordon Masson................. 27,344 1,120,512 12,500 60,000 157,975 630,030
John L. Goedert............... 12,000 432,000 14,261 59,261 359,344 810,304
David A. J. Bagley............ 0 0 6,250 26,750 61,331 251,498
Gregory A. Effertz............ 0 0 6,250 26,750 92,581 345,248
</TABLE>
TREATMENT OF OUTSTANDING STOCK OPTIONS
In connection with our separation from HNC, our executive officers and
other employees have been given the opportunity to receive options to purchase
our common stock in exchange for their agreeing to
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<PAGE> 62
cancel their outstanding options to purchase HNC common stock which are
scheduled to be unvested as of March 31, 2000. If the distribution occurs, then
options to purchase HNC common stock then held by our employees, to the extent
they are unvested at the time of the distribution, will immediately terminate
upon the distribution, and to the extent they are vested at the time of the
distribution, will remain exercisable for 90 days after the distribution at
which time they will terminate. Options to purchase our common stock granted in
exchange for the cancellation of options to purchase HNC common stock have an
exercise price of $10.00 per share. These new options to purchase Retek common
stock will vest 25% on the first anniversary of the date of grant and thereafter
at the rate of 1/48 of the amount of the original grant on a monthly basis for
36 months.
CERTAIN ARRANGEMENTS INVOLVING STOCK OPTIONS
If HNC has received a written ruling from the Internal Revenue Service that
the distribution qualifies for tax-free treatment under Section 355 of the
Internal Revenue Code, and HNC fails to complete the distribution within 120
days after the first date that HNC is eligible to effect the tax-free
distribution, John Buchanan and three other executive officers to be chosen by
Mr. Buchanan will receive a 12-month credit to the vesting schedule of their
Retek stock options. In addition, if at the time of this accelerated vesting,
these executives execute two-year non-compete agreements with Retek, their
vesting schedules will be credited by an additional 12 months. Furthermore, Mr.
Buchanan will receive the same option vesting credit in the event that Mr.
Buchanan's employment with us is terminated without cause prior to the
distribution. For purposes of this arrangement, "cause" is defined as
intentional gross misconduct by Mr. Buchanan in the performance of his duties
that results in material injury to us.
EMPLOYMENT AGREEMENT
We have an employment agreement with Mr. Buchanan that expires on November
29, 1999. The employment agreement provides that Mr. Buchanan serves as chief
executive officer at an initial annual salary of $120,000 plus a possible annual
bonus. Pursuant to his employment agreement, Mr. Buchanan was granted an option
to purchase up to 110,000 shares of HNC common stock at an exercise price equal
to fair market value on the date of grant. The options vest over a four-year
period at the rate of 25% per year. Mr. Buchanan is also eligible to participate
in HNC's employee benefit plans.
If Mr. Buchanan's employment is terminated by us without cause or due to
his death or disability, he is entitled:
- to continue to be paid his then-current base salary for the lesser of six
months or the remainder of the term of the employment agreement; and
- to be paid any unpaid bonus that is both due and payable to him and which
is not subject to any unsatisfied conditions or contingencies.
Mr. Buchanan also is subject to an employee invention assignment and
confidentiality agreement.
EMPLOYEE BENEFIT PLANS
RETEK 1999 EQUITY INCENTIVE PLAN
Our board of directors has adopted, and HNC, our sole stockholder, has
approved, the 1999 Equity Incentive Plan in order to provide grants of stock
options, stock appreciation rights, restricted stock and stock bonuses to
employees, officers, directors, consultants, independent contractors and
advisors of Retek or any parent, subsidiary or affiliate of Retek. A total of
9,000,000 shares of our common stock have been
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reserved for issuance under the equity incentive plan, with an annual increase
to be added on January 1 of each year, beginning January 2001, equal to the
least of:
- 4% of the total outstanding shares as of that January 1;
- 2,000,000 shares; or
- an amount of shares determined by the board of directors.
Administration of the Equity Incentive Plan
The compensation committee of the board of directors or the board of
directors acting as the compensation committee will administer the equity
incentive plan. The compensation committee will have the power to:
- construe, interpret and correct any defects in the equity incentive plan
or any related document;
- prescribe, amend and rescind rules and regulations relating to the equity
incentive plan;
- determine the form and terms of the awards made under the equity
incentive plan, including persons eligible to receive such awards,
whether awards have been earned and the number of shares or other
consideration subject to awards; and
- grant waivers of any plan or award conditions and vary the terms of the
award.
The compensation committee may delegate to one or more of our officers some
or all of its authority under the equity incentive plan. However, the
compensation committee may not delegate its authority to grant stock options or
other awards under the equity incentive plan to our officers who are required to
file reports of their beneficial ownership of our stock under Section 16 of the
Securities Exchange Act of 1934.
Options
The compensation committee will determine the exercise price of each option
when the option is granted. The exercise price may not be less than 85% of the
fair market value of our common stock on the date of grant. With respect to
options intended to qualify as "incentive stock options" within the meaning of
section 422 of the Internal Revenue Code, the exercise price must be at least
equal to the fair market value of our common stock on the date of grant. The
term of the options may not be more than ten years.
Options granted under the equity incentive plan are forfeited within three
months (or a shorter or longer period as determined by the compensation
committee) of the optionee's termination as an employee of our company and any
affiliates for reasons other than death or disability. If termination of
employment is due to death or disability, the options will be forfeited within
12 months of termination. In no event will the options be exercisable later than
their expiration date. If an option holder's employment is terminated for
"cause," all of that individual's options will expire.
The aggregate fair market value of shares with respect to which incentive
stock options are exercisable for the first time by an optionee during a
calendar year may not exceed $100,000.
Stock Appreciation Rights
Stock appreciation rights may be granted alone, in addition to other awards
or in tandem with stock options. The compensation committee will fix the
exercise price per share covered by stock appreciation rights at the time of
grant in accordance with the method it specifies at the time of grant. The
exercise price may not be less than 85% of the fair market value of our common
stock on the date of the grant. If granted in tandem with a stock option, stock
appreciation rights will cover an equal or lesser number of shares as covered by
the stock option, will be exercisable at the same time or times and to the
extent as the related stock option will be exercisable and will have the same
term and exercise price as the related stock option. Upon exercise of a stock
appreciation right granted in tandem with an option, the related option will be
canceled automatically to the extent of the number of shares covered by the
exercise.
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Likewise, upon exercise of a stock option, the tandem stock appreciation right
associated with that option will be canceled.
Restricted Stock
Restricted stock will be offered to participants in consideration for past
services at a purchase price to be determined by and subject to the terms and
conditions established by the compensation committee. The shares will be subject
to restrictions on transfer and other incidents of ownership for the periods of
time, and to the vesting conditions, as determined by the compensation committee
and provided in the award agreement. The share certificates representing the
shares granted to the participant will be registered in the name of the
participant but held by us. We may take any actions we deem necessary to
restrict the transfer of unvested restricted stock. Other than these
restrictions on transfer and other restrictions as determined by the
compensation committee and provided in the award agreement, a participant will
have the rights of a stockholder, including the right to receive dividends and
to vote.
Stock Bonuses
Stock bonuses are awards of shares conditioned on the achievement of
specified performance criteria. The compensation committee will have the
discretion to determine the number of shares to be awarded, whether the award
should be in the form of restricted stock, the nature, length and starting date
of the relevant performance periods, the performance criteria and the number of
shares to be granted to a participant. The earned portion of a stock bonus may
be paid currently or on a deferred basis with an interest or dividend equivalent
as determined by the compensation committee. A participant whose employment is
terminated during a performance period for any reason will be entitled to
payment of the stock bonus only to the extent earned as of the date of
termination in accordance with the relevant performance stock bonus agreement,
unless the compensation committee determines otherwise.
Non-Transferability of Awards
Awards granted under the equity plan are generally not transferable by the
participant and each award is exercisable during the lifetime of the participant
only by the participant. Any elections regarding the awards may be made only by
the participant.
Adjustments upon Merger or Change in Control
The equity incentive plan provides that in the event of a change in
control, we may provide for the assumption, substitution, conversion or
replacement of awards under the equity incentive plan. The plan defines change
in control to include:
- the dissolution or liquidation of our company;
- a merger or consolidation in which our company is not the surviving
corporation;
- a merger in which our company is the surviving corporation but after
which our stockholders cease to own their shares or other equity
interests in us;
- the sale of all or substantially all the assets of our company; and
- the acquisition, sale or transfer of more than 50% of the outstanding
shares of our common stock by tender offer or similar transaction.
In the event that a successor corporation refuses to assume or substitute
awards pursuant to a change in control transaction, the awards granted under the
equity incentive plan will expire upon the closing of the transaction. However,
the compensation committee may accelerate the vesting of any and all awards
before the change in control and any options not exercised before the change in
control will expire. If a
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participant's employment by our company and our affiliates is terminated by us
other than for cause within 24 months after a change in control, all the
participant's options and stock appreciation rights will become immediately
exercisable, all restrictions and conditions of awards of restricted stock and
stock bonuses held by the participant will lapse and all performance criteria
applicable to any award will be deemed to be fully achieved.
Amendment and Termination of the 1999 Equity Incentive Plan
Unless terminated sooner, the equity incentive plan will terminate
automatically on October 25, 2009. The board of directors may at any time
terminate or amend the plan or any related document, except that the board of
directors may not make any amendments that would require stockholder approval
without obtaining it.
RETEK 1999 EMPLOYEE STOCK PURCHASE PLAN
Our board of directors has adopted, and HNC, our sole stockholder, has
approved, the 1999 Employee Stock Purchase Plan in order to provide an
additional incentive for our employees to invest in our common stock. A total of
700,000 shares of our common stock has been reserved for issuance under the
purchase plan, with an annual increase to be added on January 1 of each year
beginning January 1, 2001, equal to the least of:
- 1.0% of the total outstanding shares as of that January 1;
- 600,000 shares; or
- an amount of shares determined by the board of directors.
Administration of the Purchase Plan
A committee of the board of directors will administer the purchase plan.
All questions of interpretation and application of the purchase plan will be
determined by the administrator.
Eligibility to Participate
All employees of our company and participating subsidiaries will be
eligible to participate, except that the following individuals may not
participate in the plan:
- employees who are not employed by our company or a participating
subsidiary 15 days before the beginning of an offering period, which is a
24 month period that starts on November 1 and May 1 of each year and ends
on October 31 and April 30, except those employees who are employed on
the effective date of this registration statement;
- employees who are customarily employed for less than 20 hours per week;
- employees who are customarily employed for less than five months in a
calendar year; and
- employees who own stock or options to purchase stock possessing 5% or
more of the total combined voting power or value of all classes of stock
of our company or any of its participating subsidiaries.
Purchases
Enrollment by an eligible employee in the purchase plan with respect to a
particular two-year offering period will constitute a grant to the eligible
employee of the right to purchase shares of our common stock
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on each of the four purchase dates during the offering period. The purchase
price of the stock will be the lower of:
- 85% of the fair market value of a share of our common stock on the first
business day of the two-year offering period; or
- 85% of the fair market value of a share of our common stock on the
purchase date.
The purchase price will generally be paid through payroll deductions.
During the first offering period, employees will be permitted to contribute
additional amounts in cash to the purchase plan.
Restrictions
For any particular calendar year, no employee may purchase stock under the
purchase plan at a rate which, when added to the employee's right to purchase
stock under all other purchase plans of our company or our parent or
subsidiaries, exceeds $25,000 in fair market value as of the first business day
of any offering period. No employee may purchase more than a maximum number of
shares fixed by the committee on a single purchase date.
End of Participation
If an employee's employment terminates for any reason, including retirement
or death, or the employee fails to remain an eligible employee, that employee
may no longer participate in the purchase plan. If an employee's participation
in the purchase plan ends, we will promptly distribute to the employee all
accrued employee contributions without interest. A withdrawing employee will not
be able to participate in the purchase plan until the next offering period.
Adjustments upon Merger or Change in Control
The purchase plan provides that if we are liquidated or dissolved, the
committee may terminate the plan immediately. The purchase plan will provide
that, in the event of any of the following transactions:
- a merger or consolidation in which our company is not the surviving
corporation;
- a merger in which our company is the surviving corporation but after
which our stockholders cease to own their shares or other equity
interests in our company;
- the sale of all or substantially all the assets of our company; or
- the acquisition, sale or transfer of more than 50% of the outstanding
shares of our common stock by tender offer or similar transaction,
the purchase plan will continue with regard to the offering periods that began
before the closing of the transaction and shares will be purchased based on the
fair market value of the surviving corporation's stock.
Non-Assignability of Rights
An employee may not transfer rights granted under the purchase plan other
than by will or the laws of descent and distribution.
Amendment and Termination of the Purchase Plan
Unless terminated sooner, the purchase plan will terminate automatically on
October 25, 2009. The board of directors has the authority to amend or terminate
the purchase plan at any time.
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RETEK 1999 DIRECTORS STOCK OPTION PLAN
Our board of directors has adopted, and HNC, our sole stockholder, has
approved, the 1999 Directors Stock Option Plan to provide grants of
non-qualified stock options to our directors who are not our employees or
employees or directors of HNC, its subsidiaries or affiliates. A maximum of
400,000 shares of our common stock may be issued under the directors stock
option plan.
Administration of the 1999 Directors Stock Option Plan
A committee of our board of directors, or the board of directors acting as
the committee, will administer the directors stock option plan. The committee
has the authority to interpret and construe the provisions of the directors
stock option plan.
Terms and Conditions of Options
The exercise price of the options will equal the fair market value of our
common stock on the date of grant. The term of the options may not be more than
ten years. The directors stock option plan provides for an initial grant of
25,000 options to be made on the later of:
- the effective date of the plan; and
- the date a director first becomes a member of our board of directors.
Succeeding grants of options to buy 7,500 shares of our common stock will be
made on each anniversary date of the initial grant. The option holders have the
ability to defer the receipt of shares otherwise deliverable upon the exercise
of an option. Options vest entirely at the end of a period of one year from the
date of grant.
All unvested options held by a director will be forfeited upon the
director's termination of service. In the event of termination of service due to
reasons other than death or disability, all vested options must be exercised
within seven months of termination. In the event of termination of service due
to death or disability, all vested options must be exercised within 12 months of
termination. In no event will the options be exercisable later than their
expiration date.
Non-Transferability of Options
Options granted under the directors stock option plan are generally not
transferable by the optionee and each award is exercisable during the life time
of the option holder only by the option holder or by the option holder's
guardian or legal representative, unless otherwise determined by the committee.
Adjustments upon Merger or Change in Control
The directors stock option plan provides that in the event of:
- our dissolution or liquidation;
- a merger or consolidation in which we are not the surviving corporation;
- a merger in which we are the surviving corporation, but after which our
stockholders cease to own shares of stock or other equity interests in
us;
- the sale of all or substantially all of our assets; or
- an acquisition, sale or transfer of more than 50% of the outstanding
shares of our common stock by tender offer or similar transaction,
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the vesting of all options granted pursuant to the directors stock option plan
will accelerate and the options will become exercisable in full prior to the
consummation of the transaction, at the time and on the conditions as the
committee determines.
Amendment and Termination of the 1999 Directors Stock Option Plan
Unless terminated sooner, the directors stock option plan will terminate
automatically ten years from its effective date. Our board of directors may at
any time terminate or amend the plan.
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CERTAIN TRANSACTIONS
This section summarizes the separation agreement and the key related
agreements that we expect to enter into with HNC before the completion of this
offering. You should read the full text of these agreements, which we filed with
the Securities and Exchange Commission as exhibits to the registration statement
of which this prospectus is a part. This section also summarizes other
transactions between us and our directors and officers. This summary is of the
material terms of these agreements and transactions.
We intend to enter into agreements with HNC that provide for the separation
of our business from HNC. In particular, we intend to enter into a separation
agreement, a corporate rights agreement, a services agreement, a technology
license agreement and a tax sharing agreement with HNC necessary to effect the
separation. These agreements will not be conditioned upon the completion of the
potential distribution. They will govern our respective rights and duties with
respect to specified offerings of our common stock and other securities,
including this offering, and other matters relating to the potential
distribution. These agreements will also contain agreements that will continue
in effect for various periods following this offering. Although HNC has
announced that, subject to the satisfaction of specified conditions, including
approval of its board of directors, it currently plans to complete the
distribution, and although we intend to agree to cooperate with HNC to complete
the distribution if HNC elects to do so, HNC will not be obligated to carry out
the distribution. Thus, we cannot assure you as to whether or not the
distribution will occur, when it would occur or what the terms of the
distribution will be if it occurs.
SEPARATION AGREEMENT
The separation agreement will cover the principal corporate transactions
required to effect the transfer to us of assets and the assumptions of
liabilities by us necessary to separate our company from HNC and other
agreements governing our relationship after the separation.
Transfer of assets and assumption of liabilities. HNC will transfer, or
agree to transfer, all of the shares of the outstanding common stock of Retek
Information Systems and other assets to us and we will assume or agree to
assume, and will agree to pay, perform, satisfy and discharge on a timely basis
specified liabilities in accordance with their terms. Except as expressly stated
in the separation agreement or in any related agreement, HNC will not make any
representation or warranty to us with respect to any asset it transfers to us
and HNC is transferring the assets to us on an "as is, where is" basis.
We have agreed with HNC to set-off and settle all accounts payable and
receivable and all other intercompany debt payable by us or HNC at the closing
of the separation. We will repay our intercompany debt to HNC, which was
approximately $9,505,000 as of September 30, 1999, from the net proceeds of this
offering. For additional information regarding the intercompany accounts between
us and HNC, see "Management's Discussion and Analysis of Financial Condition and
Operating Results -- Liquidity and Capital Resources" beginning on page 36.
The Distribution. HNC has stated that it currently intends, following the
completion of this offering, to complete the distribution, subject to the
satisfaction and fulfillment of specified conditions, including:
- HNC's receipt of a written ruling from the Internal Revenue Service that
the distribution qualifies for tax-free treatment such that HNC, its
stockholders and its affiliates will not recognize income for federal
tax purposes as a result of the distribution;
- the approval and declaration of the distribution by HNC's board of
directors;
- the absence of any change in economic or market conditions or other
circumstances that would cause HNC's board of directors to conclude that
the distribution was not in the best interest of HNC and its
stockholders; and
- HNC being able to effect the distribution in compliance with applicable
law and HNC's contractual obligations.
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HNC will have the sole discretion to decide whether or not to proceed with
the distribution and to determine all terms of the distribution, including the
form, structure and terms of any transaction and/or offering to effect the
distribution and the timing of and conditions to the completion of the
distribution. We will also agree that, at HNC's direction, we will promptly take
all actions necessary or desirable to effect these transactions.
Covenants and indemnification regarding the distribution. We will agree
that if the distribution is completed and qualifies for tax-free treatment, we
will not take any action that would be inconsistent with any representation or
covenant in any ruling, or any supplement to any ruling, issued by the Internal
Revenue Service in connection with the distribution. In particular, under the
separation agreement, we will agree that, during the two-year period immediately
following completion of the distribution, we and our affiliates will not:
- sell a substantial portion of our assets;
- voluntarily dissolve or liquidate;
- enter into any merger, consolidation or reorganization transaction;
- solicit any person to make a tender offer for any of our equity
securities;
- participate in or support any unsolicited tender offer for our equity
securities;
- approve any proposed business combination or any transaction which would
result in any person or persons acquiring in the aggregate, directly or
indirectly, a 50% or greater interest (within the meaning of Section
355(e) of the Internal Revenue Code) in us;
- fail to maintain the active conduct of our business;
- issue any equity securities (except pursuant to the exercise of employee
stock options) or redeem any equity securities that, including the
shares of common stock sold in this offering would result in the
acquisition in the aggregate, directly or indirectly, by any person or
persons of a 50% or greater interest (within the meaning of Section
355(e) of the Internal Revenue Code) in us;
- enter into any agreement for the sale of our stock or equity interests;
- take any action that violates or is inconsistent with the information,
representations or covenants contained in the initial ruling submission
or any supplemental ruling submission filed with the Internal Revenue
Service regarding the distribution; or
- engage in any agreement, understanding, arrangement or negotiation,
directly or indirectly with any person or persons with respect to any of
the actions described above;
unless (1) HNC expressly consents in writing to the action, which consent may be
withheld by HNC in its sole discretion taking into account solely the
preservation of the tax-free treatment of the distribution or (2) HNC obtains a
supplemental ruling from the Internal Revenue Service that the action will not
affect the tax-free nature of the distribution. HNC, however, does not have an
obligation to seek a supplemental ruling.
Under the terms of the separation agreement, we will agree to indemnify
HNC, on an after-tax basis, for any tax liability incurred by HNC with respect
to the distribution as a result of our taking any of the above actions, or any
transaction or event occurring after the distribution that involves our stock,
assets or business or any of our affiliates, whether or not HNC consents to, or
obtains a supplemental ruling from the Internal Revenue Service with respect to,
the action, transaction or event.
The limitations on the issuance of shares of our capital stock and other
restrictions discussed above could have a negative impact on our financial
flexibility following a tax-free distribution.
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Indemnification. We intend to agree to indemnify and hold harmless HNC and
its affiliates and their respective officers, directors, employees, and other
related parties against any liabilities, damages, claims and expenses arising
out of or relating to:
- the failure to perform or otherwise discharge any liability or contract
we assumed from HNC under the separation agreement;
- our business and any liability or contract we assumed from HNC under the
separation agreement;
- any breach of the separation agreement or the other agreements between
us and HNC related to our separation from HNC;
- any material untrue or alleged untrue statement and any material
omission in any prospectus or the registration statement filed with the
Securities and Exchange Commission relating to this offering; and
- any violation of any federal, state or other law or rule regarding
securities in connection with this offering or any subsequent offering
or transaction involving our securities.
However, our indemnification of HNC will not apply to any liability arising from
information relating to HNC provided to us by HNC.
HNC will similarly agree to indemnify us and our affiliates and our
officers, directors, employees and other related parties against any
liabilities, damages, claims and expenses arising out of or relating to:
- HNC's failure to perform or otherwise discharge any of HNC's
liabilities, other than the liabilities assumed by us;
- any liability of HNC, other than the liabilities assumed by us; and
- any breach of the separation agreement or the other agreements between
us and HNC related to our separation from HNC;
In addition, the corporate rights agreement and the tax sharing agreement
referred to below will provide for indemnification between us and HNC relating
to the substance of those agreements.
Release relating to actions by HNC related to HNC's and our assets,
businesses and operations. Except for the rights and obligations of HNC and us
arising from the agreements between us relating to this offering or the
distribution, we will release HNC and its subsidiaries and affiliates and their
respective officers, directors, employees and other related parties for all
losses for any and all past actions and failures to take actions relating to
HNC's and our assets, businesses and operations and this offering. HNC will
similarly release us.
Expenses. In general, unless otherwise provided for in the separation
agreement or any other agreement, we will pay the costs and expenses incurred in
connection with any offering of our securities before the distribution or other
similar transaction, including this offering, and the distribution.
Access to information. Generally, we and HNC will agree, for a specified
time period and on a confidential basis to provide each other, upon request and
subject to specified conditions, with access to information relating to our
respective assets, business and operations. We and HNC will also agree to keep
our books and records for a specified period of time. Also, we and HNC will
agree to cooperate with each other with respect to any claims brought against
the other relating to the conduct of our business before completion of the
distribution.
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CORPORATE RIGHTS AGREEMENT
We intend to enter into a corporate rights agreement with HNC that will
contain agreements that will continue for various time periods following this
offering and will provide HNC with registration rights relating to the shares of
our common stock it holds.
HNC options to purchase additional shares. We will grant to HNC a
continuing option, assignable to any of its subsidiaries and some of its
affiliates, to purchase additional shares of our capital stock under specified
circumstances. These options may be exercised immediately before the issuance of
any of our equity securities, other than in this offering or upon the exercise
of the underwriters' over-allotment option, and only to the extent necessary for
HNC and its affiliates to maintain:
- control of us (within the meaning of Section 368(c) of the Internal
Revenue Code of 1986);
- our status as a member of the affiliated group of corporations (within
the meaning of Section 1504 of the Internal Revenue Code) of which HNC
is the common parent, provided such status has previously been
maintained;
- HNC's then-existing ownership percentage of our equity value; and
- ownership of shares of our non-voting capital stock (if any) to the
extent, and only to the extent, necessary to own 80% of each outstanding
class of our stock.
The purchase price of the shares of common stock purchased upon any
exercise of the options will be based on the then current market price of our
common stock. These options will terminate when HNC owns less than 50% of our
equity value.
Registration rights. We intend to grant HNC registration rights that will
require us, upon HNC's request, to use our best efforts to register under the
applicable federal and state securities laws any shares of our common stock or
other equity securities owned by HNC for sale in accordance with HNC's intended
method of disposition and to take other actions as necessary to permit the sale
of that stock in other jurisdictions, subject to specified limitations. HNC will
also have the right to include the shares of our stock or other equity
securities it beneficially owns in other registrations of these equity
securities that we initiate under the Securities Act and state securities laws.
Subject to specified limitations, these registration rights will be assignable
by HNC and its assigns. The corporate rights agreement will also contain
indemnification and contribution provisions under which we and HNC will agree to
indemnify each other and their related parties for specified liabilities arising
from registrations of our securities that HNC or its assigns participate in (or,
if such indemnity is unavailable, to contribute to each other's liability).
Corporate governance. We have agreed to be governed by a board of
directors consisting of seven members including our chief executive officer,
three individuals designated by HNC and three independent directors, each of
whom will have retail industry experience and will be designated by our chief
executive officer. However, HNC's right to designate three directors will
terminate once HNC and its affiliates own less than 25% of our outstanding
common stock. For so long as HNC has the right to designate three directors, HNC
will have the right to fill any vacancy caused by the death, resignation or
removal of its designees.
In addition, under the terms of the corporate rights agreement, we will
agree that the following corporate actions, including those taken by our
subsidiary Retek Information Systems, will require the approval of at least two
of the HNC board designees and HNC:
- any acquisition or merger by us with or into another entity;
- any material change in the scope of our business;
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- any issuance of capital stock by us, other than in connection with this
offering or employee stock option and purchase plans previously approved
by HNC;
- any incurrence of debt by us in excess of $10,000,000;
- the sale, purchase or lease of any business or asset having a value of
more than $3,000,000;
- the appointment or termination of our chief executive officer or chief
financial officer;
- the amendment or adoption by us of any employee benefit or stock option
plan, other than those previously approved by HNC;
- any material change in the annual plan and budget we submit to HNC;
- any amendment to our certificate of incorporation or bylaws that would
authorize any new class or series of our capital stock or any preferred
stock, or adversely affect HNC's rights as our majority stockholder; and
- any adoption or amendment of a stockholders' rights plan or other
anti-takeover defense.
In addition, the following actions will require the approval of at least
two of the HNC board designees:
- the sale, lease, exchange or other disposition of all or a substantial
portion of our assets;
- our liquidation or dissolution;
- any transaction that would decrease HNC's equity ownership in us;
- the incurrence of annual capital expenditures or investments in excess
of $5,000,000 above budgeted amounts approved by HNC;
- the formation and structure of the committees of our board; and
- the commencement or settlement by us of any litigation, except where
potential liabilities and expenses are not expected to exceed $500,000.
The approval of the HNC board designees and HNC will no longer be required
when HNC owns less than 50% of the outstanding shares of our capital stock.
Furthermore, HNC has agreed that it will not vote in favor of, or take any
other action that would result in, the removal without cause of any of our
directors, except the HNC board designees or our chief executive officer if, for
any reason, he ceases to be our chief executive officer. In addition, John
Buchanan has agreed to enter into an agreement that if, for any reason, he
ceases to be our chief executive officer he will resign from our board of
directors if so requested by HNC or a majority of the members of our board of
directors.
Covenants. We will agree that, for so long as HNC maintains beneficial
ownership of at least 50% of the total number of our outstanding shares of
capital stock, we will:
- provide HNC with financial information regarding our company and our
subsidiaries;
- provide HNC copies of all quarterly and annual financial information and
other reports and documents we intend to file with the SEC prior to the
filing, as well as final copies upon filing; and
- cooperate with HNC and provide it with financial and other information
about us to enable HNC to timely prepare and file reports and filings it
is required to make under applicable securities laws that require HNC to
incorporate financial and other information about us.
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Other covenants. The corporate rights agreement will also provide that for
so long as HNC maintains beneficial ownership of at least 50% of the total
number of our outstanding shares of capital stock, we may not take any action or
enter into any commitment or agreement that may reasonably be anticipated to
result in a breach by HNC of, or a default by HNC under:
- any provision of HNC's certificate of incorporation or bylaws;
- any credit agreement or other material instrument binding upon HNC; or
- any judgment, order or decree of any governmental body, agency or court
having jurisdiction over HNC or any of its assets.
SERVICES AGREEMENT
We also intend to enter into a services agreement with HNC under which HNC
will agree to provide to us specified accounting, financial and tax services and
employee benefit plan and insurance administration. These services may be
changed upon agreement between HNC and us. We will pay HNC a fee for these
services equal to HNC's cost in providing these services. The fee will be
payable monthly in arrears, 30 days after the close of each month. No other fees
are payable in connection with this agreement. The services agreement will
expire one year after its effective date and any and all services can be earlier
terminated by us upon 30 days' advance notice or upon other specified
conditions. We cannot assure you that we will be able to provide these services
internally or find a third party provider on acceptable terms, if at all, after
the expiration of the services agreement.
LICENSE AGREEMENT
We and HNC will enter into a technology license agreement under which HNC
will provide us with the use of Select Profile, which includes HNC's context
vectors predictive software technology. We are not obligated to pay HNC for
granting us this license. The license will be non-exclusive, perpetual,
world-wide and royalty-free and will limit our use of this HNC technology to
develop and market products and services to retailers and their trading partners
in the supply chain. We believe that this limitation on our ability to develop
and market products and services to retailers and their trading partners will
not adversely affect us because we sell, and intend to sell, our products
exclusively to retailers and their trading partners. Under the terms of the
license agreement, HNC will not be obligated to provide us any updates to their
predictive software technology. The license agreement will contain provisions
prohibiting the transfer or sublicensing to third parties of the technology that
HNC has licensed to us. We believe that the provisions prohibiting transfer or
sublicensing to third parties will not adversely effect us because we intend to
use and develop this technology ourselves to expand our business.
TAX SHARING AGREEMENT
Following this offering, we and our subsidiaries will continue to be
included in the consolidated group of HNC for United States federal income tax
purposes and a combined, consolidated or unitary group of HNC for various state
and local income tax purposes. Prior to the completion of this offering, we and
HNC will enter into a tax sharing agreement. The tax sharing agreement will
require us to make payments to HNC equal to the amount of income taxes which
would be paid by us, subject to some adjustments, as if we and each of our
subsidiaries included in the consolidated group were to file our own separate,
combined, consolidated or unitary, federal, state and local income tax returns
for any taxable year or portion of any taxable year beginning on or after
January 1, 1999 in which we are included in HNC's consolidated group. Subject to
the immediately preceding sentence, HNC will be responsible for filing, and
paying taxes with respect to, all consolidated, combined or unitary returns
which include both HNC and us. We and our subsidiaries will continue to be
directly liable for all taxes that are imposed on a separate return basis or on
a combined, consolidated or unitary basis on a group of companies that includes
only us and our subsidiaries. Generally, liabilities resulting from audit
adjustments to tax returns for periods during
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which we and HNC file consolidated returns will be the responsibility of HNC if
such tax adjustments are attributable to HNC or its subsidiaries. However, we
will be solely responsible, and will indemnify and hold HNC harmless, for tax
adjustments arising out of, or in connection with, the transactions contemplated
by the separation agreement, other than the distribution itself. The tax sharing
agreement provides that the indemnity provisions of the separation agreement
shall govern taxes resulting from the distribution.
TREATMENT OF OUTSTANDING STOCK OPTIONS
In connection with our separation from HNC, our executive officers and
other employees have been given the opportunity to receive options to purchase
our common stock in exchange for their agreeing to cancel their outstanding
options to purchase HNC common stock which are scheduled to be unvested as of
March 31, 2000. If the distribution occurs, then options to purchase HNC common
stock then held by our employees, to the extent they are unvested at the time of
the distribution, will immediately terminate upon the distribution, and to the
extent they are vested at the time of the distribution, will remain exercisable
for 90 days after the distribution at which time they will terminate. Options to
purchase our common stock granted in exchange for the cancellation of options to
purchase HNC common stock have an exercise price of $10.00 per share. It is
anticipated that these options will vest 25% on the first anniversary of the
date of grant and thereafter at the rate of 1/48 of the amount of the original
grant on a monthly basis for 36 months.
CERTAIN ARRANGEMENTS INVOLVING STOCK OPTIONS
If HNC has received a written ruling from the Internal Revenue Service that
the distribution qualifies for tax-free treatment under Section 355 of the
Internal Revenue Code and HNC fails to complete the distribution within 120 days
after the first date that HNC is eligible to effect the tax-free distribution,
John Buchanan and three other executive officers to be chosen by Mr. Buchanan
will receive a 12-month credit to the vesting schedule of their Retek stock
options. In addition, if at the time of this accelerated vesting, these
executives execute two-year non-compete agreements with us, the vesting
schedules will be credited by an additional 12 months. Furthermore, Mr. Buchanan
will receive the same option vesting credit in the event that Mr. Buchanan's
employment with us is terminated without cause prior to the distribution. For
purposes of this arrangement, "cause" is defined as intentional gross misconduct
by Mr. Buchanan in the performance of his duties that results in material injury
to us.
ACQUISITION OF WEBTRAK LIMITED
On October 29, 1999, we acquired all of the outstanding capital stock of
WebTrak Limited. In connection with the acquisition we issued to Jeremy Thomas a
note, due on November 26, 1999, in the principal amount of $4,106,667.
We also entered into an employment agreement with Mr. Thomas. Mr. Thomas'
employment agreement provides for a two-year term of employment, during which he
will serve as president of Retail.com. Mr. Thomas will earn a monthly salary of
$15,833 and will be eligible to participate in our employee benefit programs
made available to executives from time to time. As a long-term incentive, we
have granted Mr. Thomas 250,000 stock options at a per share exercise price of
$10. In the event that we terminate Mr. Thomas' employment other than for cause
or if he resigns for good reason, he will be entitled to receive a lump-sum
severance payment equal to his base salary multiplied by the number of whole and
partial years remaining in the term of his contract, with a minimum severance
payment of one year's base salary.
Mr. Thomas has agreed to refrain from competing with us for a period of up
to five years or, if longer, until two years following his termination of
employment with us. He has also agreed not to solicit our customers or employees
during this period. In the event that we fail to pay in full the amounts owed
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to Mr. Thomas or any other person to whom we have issued a promissory note in
connection with our acquisition of WebTrak within fifteen business days after
the maturity date of the notes, Mr. Thomas' employment agreement and protective
covenants (including the covenants not to compete and/or solicit customers and
employees) will no longer be in force.
SALE OF SOFTWARE SOLUTIONS TO GANDER MOUNTAIN LLC
On May 28, 1999 we sold $1,050,137 worth of our software solutions,
including Retek Data Warehouse and Retek Merchandising System, to Gander
Mountain LLC. Mr. Stephen E. Watson, who currently serves as one of our
directors, is chief executive officer of Gander Mountain and has served in that
capacity since November 1997.
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PRINCIPAL STOCKHOLDER
Before this offering, all of the shares of our common stock issued and
outstanding were beneficially owned by HNC. Immediately after completion of this
offering, HNC will beneficially own 40,000,000 shares of our common stock, which
will represent approximately 88.9% of our then outstanding common stock (87.4%
if the underwriters' over-allotment option is exercised in full). HNC's address
is 5935 Cornerstone Court West, San Diego, California 92121.
Except for HNC, we are not aware of any person or group that will
beneficially own more than 5% of the outstanding shares of our common stock
following this offering.
The following table presents information regarding the beneficial ownership
of the outstanding common stock of HNC as of September 30, 1999 for the
following stockholders:
- each stockholder known by us to be the beneficial owner of more than 5%
of HNC's common stock;
- each of HNC's directors;
- HNC's chief executive officer and the four other most highly-paid
executive officers of HNC in 1998; and
- all of HNC's directors and executive officers as a group.
Percentage ownership calculations are based upon 24,406,864 shares of HNC
common stock outstanding as of September 30, 1999. Shares of HNC common stock
subject to options that are currently exercisable or exercisable within 60 days
of September 30, 1999 are deemed to be outstanding and to be beneficially owned
by the person holding such options for the purpose of computing the percentage
ownership of such person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other stockholder. To our knowledge,
except as indicated in the footnotes to the table and under applicable community
property laws, the stockholders named in the table have sole voting and
investment power over all shares listed in the table.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING SHARES
NAME OF BENEFICIAL OWNER OF HNC OWNED OF HNC OWNED
------------------------ ---------------- ------------------
<S> <C> <C>
Capital Research and Management Company(1).................. 3,409,400 14.0%
The TCW Group, Inc.(2)...................................... 2,454,155 10.1
Franklin Resources, Inc.(3)................................. 2,042,430 8.4
J. & W. Seligman & Co., Incorporated(4)..................... 1,878,295 7.7
Robert L. North(5).......................................... 462,526 1.9
Edward K. Chandler(6)....................................... 126,532 *
Raymond V. Thomas(7)........................................ 125,000 *
John Mutch(8)............................................... 98,056 *
Charles H. Gaylord, Jr.(9).................................. 71,500 *
Michael A. Thiemann(10)..................................... 65,167 *
John Buchanan(11)........................................... 63,404 *
Thomas F. Farb(12).......................................... 25,000 *
Alex W. Hart(13)............................................ 10,400 *
All current executive officers and directors as a group (13
persons)(14).............................................. 1,358,801 5.6%
</TABLE>
- -------------------------
* Less than 1%
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(1) Based upon a Schedule 13G dated February 11, 1999, indicating that Capital
Research and Management Company, or CRMC, has sole dispositive power with
respect to 3,409,400 shares of HNC common stock. Includes 1,668,500 shares
held by SMALLCAP World Fund, Inc. The address of CRMC is 333 South Hope
Street, Los Angeles, California 90071.
(2) Based upon a Schedule 13G dated October 12, 1999, indicating that The TCW
Group, Inc. and Robert Day, an individual who may be deemed to control the
TCW Group, Inc., share voting and dispositive power with respect to these
shares of HNC common stock. The address of The TCW Group, Inc. is 865 South
Figueroa Street, Los Angeles, California 90017.
(3) Based upon a Schedule 13G dated January 28, 1999, indicating that Franklin
Resources, Inc. may be deemed to have beneficial ownership of 2,042,430
shares. Includes 2,025,950 shares held by Franklin Advisors, Inc. The
address of Franklin Resources, Inc. is 777 Mariners Island Boulevard, San
Mateo, California 94404.
(4) Based upon information obtained from the Nasdaq Stock Market. The address
of J. & W. Seligman & Co., Incorporated is 100 Park Avenue, New York, New
York 10017.
(5) Includes 255,037 shares of HNC common stock held of record by the Robert L.
North & Dixie L. North Revocable Inter Vivos Trust, of which Mr. North is a
trustee. Also includes 207,489 shares of HNC common stock subject to
options exercisable within 60 days of September 30, 1999. Mr. North is the
president and chief executive officer and a director of HNC.
(6) Includes 50,000 shares of HNC common stock subject to options exercisable
within 60 days of September 30, 1999. Mr. Chandler is a director of HNC.
(7) These shares of HNC common stock are subject to options exercisable within
60 days of September 30, 1999. Mr. Thomas is vice president, finance and
administration, chief financial officer and secretary of HNC.
(8) Includes 96,250 shares of HNC common stock subject to options exercisable
within 60 days of September 30, 1999. Mr. Mutch is the president and chief
operating officer of HNC.
(9) Represents 21,500 shares of HNC common stock held of record by the Gaylord
Family Trust UTD 12/31/93, Charles H. Gaylord, Jr. and Lynn M. Gaylord
trustees, and 50,000 shares of HNC common stock subject to options
exercisable within 60 days of September 30, 1999. Mr. Gaylord is a director
of HNC.
(10) Includes 34,167 shares of HNC common stock held of record by the Thiemann
Family Trust dated July 1, 1996, of which Mr. Thiemann is a trustee, 6,000
shares held directly by Mr. Thiemann and 25,000 shares subject to options
exercisable within 60 days of September 30, 1999. Mr. Thiemann is the
former president of HNC Financial Solutions.
(11) Includes 62,500 shares of HNC common stock subject to options exercisable
within 60 days of September 30, 1999. Mr. Buchanan is our chairman and
chief executive officer.
(12) Represents shares of HNC common stock subject to options exercisable within
60 days of September 30, 1999. Mr. Farb is a director of HNC.
(13) Includes 10,000 shares of HNC common stock subject to options exercisable
within 60 days of September 30, 1999. Mr. Hart is a director of HNC.
(14) Includes 727,489 shares of HNC common stock subject to options exercisable
within 60 days of September 30, 1999, including the options described in
footnotes (5) through (13).
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DESCRIPTION OF CAPITAL STOCK
We will file our amended and restated certificate of incorporation
immediately before the completion of this offering. The following description of
our capital stock is intended as a summary only and is not complete. You should
read the full text of our amended and restated certificate of incorporation and
our bylaws, which were filed with the registration statement of which this
prospectus is a part.
GENERAL
We are authorized to issue 150,000,000 shares of common stock, par value
$0.01 per share, and 5,000,000 shares of undesignated preferred stock, par value
$0.01 per share. After this offering there will be 45,000,000 shares of our
common stock outstanding, and 45,750,000 shares if the underwriters exercise
their over-allotment option in full.
COMMON STOCK
The holders of shares of our common stock will be entitled to one vote for
each share on all matters voted on by stockholders, including elections of
directors and, except as otherwise required by law or provided in any resolution
adopted by our board of directors with respect to any series of preferred stock,
the holders of shares of our common stock will possess all the voting power. Our
certificate of incorporation will not provide for cumulative voting in the
election of directors. Subject to any preferential rights of any outstanding
series of preferred stock created by our board of directors from time to time,
holders of our common stock will be entitled to such dividends as may be
declared from time to time by our board of directors from funds legally
available for the payment of dividends. Upon liquidation, holders of our common
stock will be entitled to receive pro rata all of our assets available for
distribution to holders of our common stock. Holders of our common stock will
have no liability to further calls or assessment by us, and have no conversion,
redemption or preemptive rights to purchase additional shares of any class of
our shares, except that HNC will have specified rights to purchase additional
shares of our common stock as described under "Certain Transactions -- Corporate
Rights Agreement" beginning on page 69.
PREFERRED STOCK
There are no shares of preferred stock outstanding. The preferred stock is
issuable either as a class without series or in one or more series and with the
designations, rights, privileges, restrictions and conditions for each class or
series of preferred stock to be as stated in the resolutions adopted by our
board of directors that provide for the designation of each series. Our board of
directors is authorized to determine the rights of each class or series of
preferred stock, including the voting, dividend, redemption, conversion and
liquidation powers, rights and preferences and the limitations of each class or
series of the preferred stock. We believe that the ability of our board of
directors to issue one or more series of preferred stock will provide us with
flexibility in structuring possible future financings and acquisitions, and in
meeting other corporate needs that may arise. The authorized shares of preferred
stock will be available for issuance without further action by stockholders,
except as is required by applicable law, contract or the rules of any stock
exchange or automated quotation system on which our securities may be listed or
traded.
Although our board of directors has no present plans to issue any preferred
stock, it has the power to create and issue a series of preferred stock that
could, depending on its terms and rights, impede the completion of a merger,
tender offer or other takeover attempt. Our board of directors will make any
determination to issue preferred stock based on its judgment as to our best
interests and the best interests of our stockholders. Our board of directors
could issue preferred stock with voting and other rights that could adversely
effect the voting power of the holders of our common stock, and that could
discourage an acquisition attempt through which an acquiror may be able to
change the composition of our board of
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directors, including a tender offer or other transaction that some, or a
majority, of our stockholders might believe to be in their best interests or in
which stockholders might receive a premium over the then current market price of
their stock.
CORPORATE OPPORTUNITIES
Our certificate of incorporation will provide that HNC will have no duty to
refrain from engaging in the same or similar activities or lines of business as
we are engaged, and neither HNC nor any officer or director of HNC (except as
described below), will be liable to us or our stockholders for breach of any
fiduciary duty by reason of any such activities of HNC. Under our certificate of
incorporation, if HNC learns of a potential transaction or matter that may be a
corporate opportunity for both HNC and us, HNC will have no duty to communicate
or offer the corporate opportunity to us and will not be liable to us or our
stockholders for breach of any fiduciary duty as one of our stockholders because
it pursues or acquires the corporate opportunity for itself, directs the
corporate opportunity to another person, or does not communicate information
regarding the corporate opportunity to us.
Our certificate of incorporation provides that, if one of our directors or
officers who is also a director or officer of HNC learns of a potential
transaction or matter that may be a corporate opportunity for both us and HNC,
our director or officer will have fully satisfied and fulfilled the director's
or officer's fiduciary duty to us and our stockholders with respect to such
corporate opportunity if director or officer acts in a manner consistent with
the following policy:
- a corporate opportunity offered to any person who is one of our
officers, and who is also a director but not an officer of HNC, will
belong to us;
- a corporate opportunity offered to any person who is a director but not
one of our officers, and who is also a director or officer of HNC, will
belong to us if the opportunity is expressly offered to the person
solely in his or her capacity as one of our directors, and otherwise it
will belong to HNC; and
- a corporate opportunity offered to any person who is both one of our
officers and an officer of HNC will belong to us if the opportunity is
expressly offered to the person solely in his or her capacity as one of
our officers, and otherwise it will belong to HNC.
For purposes of the foregoing:
- any of our directors who is chairman of our board of directors or one of
its committees will not be considered to be one of our officers, unless
the person is one of our full-time employees; and
- the terms "we", "us" and "our" mean Retek Inc. and all corporations,
partnerships, joint ventures, associations and other entities in which
it beneficially owns (directly or indirectly) 50% or more of the
outstanding voting stock, voting power, partnership interest or similar
voting interests; and
- the term "HNC" means HNC Software Inc. and all corporations,
partnerships, joint ventures, associations and other entities (other
than us) in which HNC beneficially owns (directly or indirectly) 50% or
more of the outstanding voting stock, voting power, partnership
interests or similar voting interests.
These provisions will expire on the date that HNC ceases to own
beneficially stock representing at least 20% of the total voting power of all of
our outstanding common stock and no person who is one of our directors or
officers is also a director or officer of HNC or any of its subsidiaries (other
than us).
In addition to any vote of the stockholders required by our certificate of
incorporation, until the time that HNC ceases to own beneficially stock
representing at least 20% of the total voting power of all classes of our
outstanding common stock, the affirmative vote of the holders of more than 80%
of the total voting power of all classes of outstanding common stock is required
to alter, amend or repeal in a manner adverse to the interests of HNC and its
subsidiaries (other than us), or adopt any provision adverse to the interests
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of HNC and its subsidiaries (other than us), or inconsistent with, the corporate
opportunity provisions described above in our certificate of incorporation or
bylaws.
Any person purchasing or otherwise acquiring our common stock will be
deemed to have notice of, and to have consented to, the foregoing provisions
regarding corporate opportunities.
CHARTER PROVISIONS AND DELAWARE LAWS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT
The provisions of our certificate of incorporation and bylaws summarized
below may be deemed to have an anti-takeover effect and may delay, discourage or
prevent a tender offer or takeover attempt that a stockholder might consider to
be in its best interest, including attempts that might result in a premium being
paid over the market price of our common stock.
BOARD OF DIRECTORS
Number of directors. Before the date on which HNC and its affiliates cease
to beneficially own at least a majority of the then outstanding shares of our
common stock, which we refer to as the trigger date, our board of directors will
consist of seven members. After the trigger date, the board of directors may
consist of not less than three and not more than 10 directors, with the exact
number to be determined by the board of directors. Our current board of
directors has seven members. The directors, other than those elected by the
holders of any designated and issued preferred stock with different voting
rights, will be classified, with respect to the time they hold office, into
three classes, each class to consist, as nearly as possible, of one-third of the
total number of the then authorized directors. Messrs. Terbeek's and Watson's
terms of office will expire at the annual meeting of stockholders in 2000,
Messrs. Buchanan's and Buckenham's terms of office will expire at the annual
meeting of stockholders in 2001 and Messrs. Carey's, Gaylord's and Hart's terms
of office will expire at the annual meeting of stockholders in 2002. Each
director will hold office until such person's successor is duly elected and
qualified.
Removal of directors. Before the trigger date, directors may be removed
with or without cause at any time by vote of the recordholders of a majority of
our capital stock then entitled to vote at an election of directors. Prior to
the trigger date, directors may be removed with or without cause. Under the
terms of the corporate rights agreement, HNC will agree that it will not vote,
or take any action, to remove without cause any director, except a HNC board
designee. After the trigger date, directors may be removed only for cause.
Filling vacancies. Our certificate of incorporation and bylaws provide
that, subject to any rights of holders of any designated and issued preferred
stock or the terms of any contract, including the corporate rights agreement, to
which we are bound, any vacancy occurring on the board of directors caused by
death, resignation, increase in the number of directors or any other vacancy
occurring on the board of directors may be filled only by the vote of the
majority of the directors then in office even if less than a quorum, provided
that following the appointment, at least three of the directors are nominees of
HNC. Any director so elected or appointed will hold office for the remainder of
the full term of the class of director in which the new directorship was created
and until his or her successor is elected and qualified. No decrease in the
number of directors will shorten the term of any incumbent director.
The provisions of the corporate documents described above would preclude a
third party from removing incumbent directors and simultaneously gaining control
of our board of directors by filling the vacancies created by removal with its
own nominees. Under the classified board provision described above, it would
take at least two elections of directors for any individual or group to gain
control of our board of directors. Accordingly, these provisions could
discourage a third party from initiating a proxy contest, making a tender offer
or otherwise attempting to gain control of us.
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NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETING
After the trigger date, any action required or permitted to be taken by the
stockholders may be effected only at a duly called annual or special meeting of
stockholders and may not be effected by a written consent of stockholders in
lieu of such a meeting. After the trigger date, except as otherwise required by
law and subject to the rights of the holders of any preferred stock, special
meetings of stockholders for any purpose may be called only by the chairman of
our board of directors, our president or at the request in writing of a majority
of our board of directors and the power of stockholders to call a special
meeting is specifically denied. Before the trigger date, we will call a special
meeting of stockholders promptly upon the request of HNC.
These provisions may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting unless a special meeting is
called by our board of directors or specified officers.
ADVANCE NOTICE PROCEDURES
Stockholders must follow an advance notice procedure for the nomination,
other than by or at the direction of our board of directors, of candidates for
election as directors, as well as for other stockholder proposals to be
considered at annual meetings of stockholders. In general, we will have to
receive written notice of intent to nominate a director or raise matters at an
annual meeting not less than 60 nor more than 90 days before the anniversary of
the previous year's annual meeting of stockholders. The notice must contain
information concerning the person to be nominated or the matters to be brought
before the meeting and concerning the stockholder submitting the proposal. If
the chairman of a meeting determines that an individual was not nominated, or
other business was not brought before the meeting, in accordance with the
advance notice procedures, the individual will not be eligible for election as a
director, or the business will not be conducted at the meeting, as the case may
be.
The advance notice procedures do not apply to HNC and its affiliates prior
to the trigger date.
CHARTER AMENDMENTS
Our certificate of incorporation will provide that after the trigger date
the affirmative vote of the holders of at least 80% of the outstanding shares of
our common stock is required to amend, repeal or adopt any provision
inconsistent with the provisions described above. Our certificate of
incorporation further provides that after the trigger date specified provisions
of our bylaws may be altered, amended or repealed by the affirmative vote of
directors constituting not less than a majority of our entire board of directors
(if effected by action of our board of directors) or by the affirmative vote of
the holders of at least 80% of the voting power of all classes of outstanding
capital stock, voting together as a single class (if effected by action of the
stockholders). In addition, under the terms of the corporate rights agreement,
we will agree that until the trigger date, any changes to our certificate of
incorporation or bylaws that would harm HNC's rights must be approved by at
least two of HNC's board designees and by HNC as our majority stockholder.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law provides that, subject
to specified exceptions, an "interested stockholder" of a Delaware corporation
shall not engage in any business combination, including mergers or
consolidations or acquisitions of additional shares of the corporation, with the
corporation for a three-year period following the date that the stockholder
becomes an interested stockholder unless:
- before that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder,
- upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (excluding certain shares), or
- on or subsequent to that date, the business combination is approved by
the board of directors of the corporation and authorized at an annual or
special meeting of stockholders by the affirmative
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vote of at least 66 2/3% of the outstanding voting stock of the
corporation that is not owned by the interested stockholder.
Except as otherwise specified in Section 203, an interested stockholder is
defined to include:
- any person that is the owner of 15% or more of the outstanding voting
securities of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within three years immediately
before the date of determination, and
- the affiliates and associates of any such person.
Section 203 may make it more difficult for a person who would be an
interested stockholder to effect various business combinations with a
corporation for a three-year period. Once HNC or its successors own less than
15% of our outstanding voting stock, Section 203 will apply to us. The
provisions of Section 203 may encourage persons interested in acquiring us to
negotiate in advance with our board of directors, since the stockholder approval
requirement would be avoided if a majority of the directors then in office
approves either the business combination or the transaction that results in any
person becoming an interested stockholder. Section 203 also may have the effect
of preventing changes in our management. It is possible that Section 203 could
make it more difficult to accomplish transactions that our stockholders may
otherwise deem to be in their best interests.
LIMITATION OF LIABILITY
Our certificate of incorporation provides that none of our directors will
be personally liable to us or our stockholders for monetary damages for breach
of fiduciary duty as a director, except, if required by law for liability
- for breach of the director's duty of loyalty to us or our stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- for unlawful payments of dividends, stock purchases or redemptions, or
- for any transaction from which the director derived an improper personal
benefit.
Neither the amendment or repeal of this provision will eliminate or reduce
its application to any matter occurring, or any cause of action, suit or claim
that, but for this provision, would accrue or arise before its amendment or
repeal. While our certificate of incorporation provides directors with
protection from monetary damages for breaches of their duty of care, it does not
eliminate the duty of care. Therefore, our certificate of incorporation will not
affect the availability of equitable remedies such as an injunction or
rescission based on a director's breach of his or her duty of care.
LISTING
We have applied for listing our common stock on The Nasdaq National Market
under the symbol "RETK."
TRANSFER AGENT AND REGISTRANT
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services located at 85 Challenger Rd., Ridgefield Park, New Jersey
07660. Its phone number is (201) 296-4000.
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<PAGE> 84
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no market for our common stock. A
significant public market for our common stock may not develop or be sustained
after this offering. Future sales of substantial amounts of our common stock in
the public market following this offering, including shares issued upon exercise
of outstanding options or options that may be granted after this offering, could
harm market prices and could impair our ability to raise capital through sale of
our equity securities. As described below, less than 11.1% of our shares
currently outstanding will be available for sale immediately after this offering
because of contractual restrictions on resale. Sales of substantial amounts of
our common stock in the public market after the restrictions lapse could
adversely affect the prevailing market price of our common stock and our ability
to raise equity capital in the future.
Upon completion of this offering, we will have outstanding 45,000,000
shares of common stock, or 45,750,000 shares if the underwriters exercise their
over-allotment option in full. Of these outstanding shares, 5,000,000 shares, or
5,750,000 shares if the underwriters exercise their over-allotment option in
full, will be freely tradable without restriction under the Securities Act,
except for shares purchased by our "affiliates," as that term is defined in Rule
144 under the Securities Act. Any shares purchased by our affiliates generally
may be sold in compliance with Rule 144 as described below.
The 40,000,000 shares of our common stock held by HNC after this offering
are "restricted securities" within the meaning of Rule 144. The shares held by
HNC will be subject to contractual restrictions on resale based on the lock-up
agreements described below. Further, since the shares held by HNC are restricted
securities, HNC may not sell them unless they are registered under the
Securities Act or an exemption from registration is available.
HNC, Retek and our officers and directors have entered into lock-up
agreements or other contractual restrictions providing that the stockholder will
not offer, sell, contract to sell or otherwise dispose of any shares of our
common stock for a period of 180 days after the date of this prospectus, without
the prior written consent of Credit Suisse First Boston Corporation. As a result
of these lock-up agreements and other contractual restrictions, notwithstanding
possible earlier eligibility for sale under the provisions of Rule 144, none of
these shares will be resellable until 181 days after the date of this
prospectus. Credit Suisse First Boston Corporation may, in its sole discretion
and at any time without notice, release any portion of the securities subject to
lock-up agreements or other contractual restrictions.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year, including the holding period of any prior owner
except an affiliate of us, would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately 450,000 shares immediately after this offering;
or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a Form 144 in connection with the
sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been an affiliate of
ours at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Within 90 days following the effectiveness of this offering, we will file a
registration statement on Form S-8 to register shares of our common stock
subject to outstanding options or reserved for future issuance under our stock
plans. As of October 31, 1999, options to purchase approximately 6,986,000
shares of our common stock were outstanding and approximately 2,014,000 shares
of our common stock
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<PAGE> 85
were reserved for future issuance under our stock plans. The common stock issued
upon exercise of outstanding vested options, other than common stock issued to
our affiliates, will be available for immediate resale in the open market.
REGISTRATION RIGHTS
At any time more than six months after the closing of this offering, HNC
and specified affiliates of HNC, who are holders of 40,000,000 shares of our
common stock, will be entitled to rights with respect to the registration of
those shares under the Securities Act. Registration of those shares under the
Securities Act would result in those shares becoming freely tradable without
restriction under the Securities Act, except for shares purchased by affiliates,
immediately upon effectiveness of registration.
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<PAGE> 86
MATERIAL UNITED STATES FEDERAL TAX
CONSEQUENCES TO NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of common
stock that may be relevant to you if you are a non-United States holder. In
general, a "non-United States Holder" is a person or entity that is, for United
States federal income tax purposes, a foreign corporation, a nonresident alien
individual, a foreign partnership or a foreign estate or trust. This discussion
is based on current law, which is subject to change, possibly with retroactive
effect, or different interpretations. This discussion is limited to non-United
States Holders who hold shares of common stock as capital assets. Moreover, this
discussion is for general information only and does not address all of the tax
consequences that may be relevant to you in light of your personal
circumstances, nor does it discuss special tax provisions that may apply to you
if you relinquished United States citizenship or residence.
If you are an individual, you may, in many cases, be treated as a resident
alien, as opposed to a nonresident alien, by virtue of being present in the
United States for at least 31 days in the calendar year and for a total of at
least 183 days during a three-year period ending in the current calendar year
counting for these purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year. Resident aliens are subject to
United States federal income tax as if they were United States citizens.
EACH PROSPECTIVE PURCHASER OF OUR COMMON STOCK IS ADVISED TO CONSULT A TAX
ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF
PURCHASING, OWNING AND DISPOSING OF OUR COMMON STOCK AS WELL AS ANY TAX
CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY UNITED STATES STATE,
MUNICIPALITY OR OTHER TAXING JURISDICTION.
DIVIDENDS
If dividends are paid, as a non-United States Holder, you will be subject
to withholding of United States federal income tax at a 30% rate or a lower rate
as may be specified by an applicable income tax treaty. To claim the benefit of
a lower rate under an income tax treaty, you must properly file with the payor
an IRS Form 1001, or successor form, claiming an exemption from or reduction in
withholding under the applicable tax treaty.
If dividends are considered effectively connected with the conduct of a
trade or business by you within the United States and, where a tax treaty
applies, are attributable to a United States permanent establishment of yours,
those dividends will not be subject to withholding tax, but instead will be
subject to United States federal income tax on a net basis at applicable
graduated individual or corporate rates, provided an IRS Form 4224, or successor
form, is filed with the payor. If you are a foreign corporation, any effectively
connected dividends may, under specified circumstances, be subject to an
additional "branch profits tax" at a 30% rate or a lower rate as may be
specified by an applicable income tax treaty.
Unless the payor has knowledge to the contrary, dividends paid before
January 1, 2001 to an address outside the United States are presumed to be paid
to a resident of that country for purposes of the withholding discussed above
and for purposes of determining the applicability of a tax treaty rate. However,
recently finalized Treasury Regulations pertaining to United States federal
withholding tax provide that you must comply with certification procedures, or,
in the case of payments made outside the United States with respect to an
offshore account, documentary evidence procedures, directly or under specified
circumstances through an intermediary, to obtain the benefits of a reduced rate
under an income tax treaty with respect to dividends paid after December 31,
2000. In addition, these regulations will require you, if you provide an IRS
Form 4224 or successor form, as discussed above, to provide your identification
number.
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<PAGE> 87
If you are eligible for a reduced rate of United States withholding tax
under an income tax treaty, you may obtain a refund of any excess amounts
withheld by filing an appropriate claim for refund with the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
As a non-United States Holder, you generally will not be subject to United
States federal income tax on any gain recognized on the sale or other
disposition of common stock unless:
(1) the gain is considered effectively connected with the conduct of a
trade or business by you within the United States and, where a tax
treaty applies, is attributable to a United States permanent
establishment of yours (and, in which case, if you are a foreign
corporation, you may be subject to an additional branch profits tax
equal to 30% or a lower rate as may be specified by an applicable
income tax treaty);
(2) you are an individual who holds the common stock as a capital asset
and are present in the United States for 183 or more days in the
taxable year of the sale or other disposition and other conditions are
met; or
(3) we are or have been a "United States real property holding
corporation," or a USRPHC, for United States federal income tax
purposes. We believe that we are not currently, and are likely not to
become, a USRPHC. If we were to become a USRPHC, then gain on the sale
or other disposition of common stock by you generally would not be
subject to United States federal income tax provided:
- the common stock was "regularly traded" on an established securities
market; and
- you do not actually or constructively own more than 5% of the common
stock during the shorter of the five-year period preceding the
disposition or your holding period.
FEDERAL ESTATE TAX
If you are an individual, common stock held at the time of your death will
be included in your gross estate for United States federal estate tax purposes,
and may be subject to United States federal estate tax, unless an applicable
estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
We must report annually to the Internal Revenue Service and to each of you
the amount of dividends paid to you and the tax withheld with respect to those
dividends, regardless of whether withholding was required. Copies of the
information returns reporting those dividends and withholding may also be made
available to the tax authorities in the country in which you reside under the
provisions of an applicable income tax treaty or other applicable agreements.
Backup withholding is generally imposed at the rate of 31% on payments to
persons that fail to furnish the necessary identifying information to the payor.
Backup withholding generally will not apply to dividends paid before January 1,
2001 to a non-United States Holder at an address outside the United States,
unless the payor has knowledge that the payee is a United States person. In the
case of dividends paid after December 31, 2000, the recently finalized Treasury
Regulations provide that you generally will be subject to withholding tax at a
31% rate unless you certify your non-United States status.
The payment of proceeds of a sale of common stock effected by or through a
United States office of a broker is subject to both backup withholding and
information reporting unless you provide the payor with your name and address
and you certify your non-United States status or you otherwise establish an
exemption. In general, backup withholding and information reporting will not
apply to the payment of the
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<PAGE> 88
proceeds of a sale of common stock by or through a foreign office of a broker.
If, however, the broker is, for United States federal income tax purposes, a
United States person, a controlled foreign corporation, or a foreign person that
derives 50% or more of its gross income from the conduct of a trade or business
in the United States, or, in addition, for periods after December 31, 2000, a
foreign partnership that at any time during its tax year either is engaged in
the conduct of a trade or business in the United States or has as partners one
or more United States persons that hold more than 50% of the income or capital
interest in the partnership, the payments will be subject to information
reporting, but not backup withholding, unless the broker has documentary
evidence in its records that you are a non-United States Holder and other
conditions are met or you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against the United States federal income tax
liability, provided the required information is furnished in a timely manner to
the IRS.
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<PAGE> 89
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters
named below, for whom Credit Suisse FirstBoston Corporation, BancBoston
Robertson Stephens Inc. and U.S. Bancorp Piper Jaffray Inc. are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
- ----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
BancBoston Robertson Stephens Inc...........................
U.S. Bancorp Piper Jaffray Inc..............................
---------
Total..................................................... 5,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or this
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 750,000 additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------------------- -------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions payable by us................... $ $ $ $
Expenses payable by us...................... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers and directors and our stockholder have agreed that we and
they will not offer, sell, contract to sell, announce an intention to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the Securities
Act relating to any additional shares of our common stock or securities
convertible into or exchangeable or exercisable for any of our common stock, or
publicly disclose the intention to make any such offer, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
in our case for issuances pursuant to the exercise of employee stock options
outstanding on the date hereof.
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<PAGE> 90
The underwriters have reserved for sale, at the initial public offering
price up to 500,000 shares of the common stock for employees, directors and
certain other persons associated with us or HNC who have expressed an interest
in purchasing common stock in this offering. The number of shares available for
sale to the general public in this offering will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect. In addition, HNC has agreed to indemnify the
underwriters against those liabilities, but only to the extent indemnification
by us is unavailable or insufficient.
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "RETK."
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors that will be considered
in determining the public offering price include:
- the information set forth in this prospectus and otherwise available to
the underwriters;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives on behalf of the underwriters may engage in
overallotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
- Overallotment involves syndicate sales in excess of this offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
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<PAGE> 91
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or under a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the common
stock.
REPRESENTATION OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase common stock without the
benefit of a prospectus qualified under the securities laws, (2) where required
by law, that the purchaser is purchasing as principal and not as agent, and (3)
the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer and these persons. All or a substantial portion of the assets of the
issuer and these persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or these persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in our common
stock in their particular circumstances and with respect to the eligibility of
our common stock for investment by the purchaser under relevant Canadian
legislation.
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<PAGE> 92
LEGAL MATTERS
The validity of the common stock offered under this prospectus will be
passed upon for Retek by Shearman & Sterling, Menlo Park, California. Other
legal matters will be passed upon for the underwriters by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The combined financial statements of Retek Inc. and Retek Information
Systems, Inc. as of December 31, 1997 and 1998 and for each of the three years
in the period ended December 31, 1998 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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<PAGE> 93
WHERE TO FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission with respect to the common stock offered under this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information in the registration statement
or the exhibits and schedules that are part of the registration statement. For
further information on Retek and the common stock we are offering, reference is
made to the registration statement and the exhibits filed as a part of the
registration statement. Statements contained in this prospectus concerning the
contents of any contract or any other document referred to may be only summaries
of these documents. The exhibits to this registration statement should be
referenced for the complete contents of these contracts and documents. Each
statement is qualified by reference to the exhibit. The registration statement,
including the exhibits, may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the Commission's regional offices located in New
York, New York and Chicago, Illinois. Copies of all or any part of the
registration statement may be obtained from these offices after payment of fees
prescribed by the Commission. Please call the Commission at 1-800-SEC-0330 for
further information on the public reference rooms. The Commission also maintains
a Web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance with this law, will file periodic reports, proxy statements and other
information with the SEC. These periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and the web site of the SEC referred to above.
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<PAGE> 94
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.:
Report of Independent Accountants........................... F-2
Combined Balance Sheet as of December 31, 1997 and 1998, and
September 30, 1999 (unaudited)............................ F-3
Combined Statement of Income for the years ended December
31, 1996, 1997 and 1998 and for the nine months ended
September 30, 1998 and 1999 (unaudited)................... F-4
Combined Statement of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and for the nine months
ended September 30, 1998 and 1999 (unaudited)............. F-5
Combined Statement of Changes in Stockholder's Equity and
Comprehensive Income for the years ended December 31,
1996, 1997 and 1998, and for the nine months ended
September 30, 1999 (unaudited)............................ F-6
Notes to Combined Financial Statements...................... F-7
RETEK LOGISTICS, INC.:
Report of Independent Accountants........................... F-24
Balance Sheet as of December 31, 1996 and 1997, and March
31, 1998.................................................. F-25
Statement of Operations for the years ended December 31,
1996 and 1997, and for the three months ended March 31,
1997 (unaudited) and for the three months ended March 31,
1998...................................................... F-26
Statement of Cash Flows for the years ended December 31,
1996 and 1997, and for the three months ended March 31,
1997 (unaudited) and for the three months ended March 31,
1998...................................................... F-27
Statement of Changes in Stockholders' Equity and
Comprehensive Income for the years ended December 31, 1996
and 1997 and for the three months ended March 31, 1998.... F-28
Notes to Financial Statements............................... F-29
PRO FORMA COMBINED FINANCIAL INFORMATION OF RETEK INC. AND
RETEK INFORMATION SYSTEMS INC.:
Pro Forma Combined Statement of Income for the year ended
December 31, 1998......................................... F-37
Notes to Pro Forma Combined Statement of Income............. F-38
</TABLE>
F-1
<PAGE> 95
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
In our opinion, the accompanying combined balance sheet and the related combined
statements of income, of cash flows and of changes in stockholder's equity and
comprehensive income present fairly, in all material respects, the combined
financial position of Retek Inc. (formerly Retek Logistics, Inc.) and Retek
Information Systems, Inc. and its subsidiaries (collectively the "Company") at
December 31, 1997 and 1998, and the combined results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
San Diego, California
September 9, 1999
F-2
<PAGE> 96
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
STOCKHOLDER'S EQUITY
DECEMBER 31, --------------------
----------------- UNAUDITED
1997 1998 UNAUDITED (NOTE 1)
------- ------- ------------- --------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 2,469 $ 415 $ 499
Accounts receivable, net.................. 11,972 22,050 30,364
Current portion of deferred income
taxes.................................. 2,706 2,972 3,233
Other current assets...................... 1,158 2,706 2,690
------- ------- -------
Total current assets................... 18,305 28,143 36,786
Deferred income taxes, less current
portion................................... 15,455 13,960 13,381
Property and equipment, net................. 3,006 4,887 6,949
Intangible assets, net...................... 1,130 4,010 2,917
Other assets................................ -- 283 33
------- ------- -------
$37,896 $51,283 $60,066
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................... $ 3,212 $ 3,289 $ 4,369
Accrued liabilities....................... 2,140 2,970 2,487
Deferred revenue.......................... 1,446 3,064 2,625
Payable to HNC Software Inc............... 6,491 5,944 9,505
------- ------- -------
Total current liabilities.............. 13,289 15,267 18,986
Commitments and contingencies (Notes 3 and
7)
Stockholder's equity:
Retek Inc.:
Common stock, $0.01 par value -- 1,000
shares authorized, 150,000,000 pro
forma; 1,000 shares issued and
outstanding actual, 40,000,000 shares
issued and outstanding pro forma..... -- -- -- $ 400
Preferred stock, $0.01 par value -- no
shares authorized, 5,000,000 pro
forma; no shares issued and
outstanding actual and pro forma..... -- -- -- --
Paid-in capital........................ -- 6,564 6,564 26,644
Retek Information Systems, Inc.:
Common stock, $1.00 par value -- 1,000
shares authorized; 100 shares issued
and outstanding actual, no shares
issued and outstanding pro forma..... -- -- -- --
Paid-in capital........................ 19,230 20,290 20,480 --
Accumulated other comprehensive loss...... (95) (188) (407) (407)
Retained earnings......................... 5,472 9,350 14,443 14,443
------- ------- ------- -------
Total stockholder's equity............. 24,607 36,016 41,080 $41,080
------- ------- ------- =======
$37,896 $51,283 $60,066
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE> 97
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ---------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
License and maintenance....................... $ 9,740 $28,895 $42,753 $30,913 $41,392
Services and other............................ 3,693 2,028 12,280 8,916 16,367
------- ------- ------- ------- -------
Total revenue.............................. 13,433 30,923 55,033 39,829 57,759
------- ------- ------- ------- -------
Cost of revenue:
License and maintenance....................... 1,797 2,747 4,349 3,075 4,079
Services and other............................ 2,082 898 9,503 6,966 11,642
------- ------- ------- ------- -------
Total cost of revenue...................... 3,879 3,645 13,852 10,041 15,721
------- ------- ------- ------- -------
Gross profit............................... 9,554 27,278 41,181 29,788 42,038
Operating expenses:
Research and development...................... 4,829 9,485 12,918 9,301 14,749
Sales and marketing........................... 1,892 8,261 14,075 10,263 12,948
General and administrative.................... 1,415 2,913 3,921 2,994 4,076
Acquired in-process research and
development................................ -- -- 1,750 1,750 --
Acquisition related amortization of
intangibles................................ -- -- 429 286 780
------- ------- ------- ------- -------
Total operating expenses................... 8,136 20,659 33,093 24,594 32,553
------- ------- ------- ------- -------
Operating income................................ 1,418 6,619 8,088 5,194 9,485
Other income (expense), net..................... -- 24 11 19 (330)
------- ------- ------- ------- -------
Income before income tax (benefit)
provision.................................. 1,418 6,643 8,099 5,213 9,155
Income tax (benefit) provision.................. (815) 3,167 4,221 3,042 4,062
------- ------- ------- ------- -------
Net income.................................... $ 2,233 $ 3,476 $ 3,878 $ 2,171 $ 5,093
======= ======= ======= ======= =======
Pro forma unaudited basic net income per common
share (Note 1)................................ $ 0.10 $ 0.13
======= =======
Pro forma unaudited diluted net income per
common share (Note 1)......................... $ 0.09 $ 0.12
======= =======
Shares used in computing pro forma unaudited
basic net income per common share (Note 1).... 40,000 40,000
======= =======
Shares used in computing pro forma unaudited
diluted net income per common share (Note
1)............................................ 41,635 41,635
======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE> 98
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------------------
1996 1997 1998 1998 1999
------- ------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 2,233 $ 3,476 $ 3,878 $ 2,171 $ 5,093
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Provision for doubtful accounts............. 309 212 1,652 224 1,899
Depreciation and amortization............... 804 1,266 2,420 1,700 2,782
Acquired in-process research and
development.............................. -- -- 1,750 1,750 --
Deferred income tax expense................. (1,255) 1,971 753 1,714 318
Tax benefit from stock option
transactions............................. 18 815 1,060 530 190
Changes in assets and liabilities:
Accounts receivable...................... (3,632) (5,915) (10,814) (7,028) (10,430)
Other assets............................. (430) (869) (1,736) 404 171
Accounts payable......................... 1,000 1,567 185 582 1,080
Accrued liabilities...................... 1,118 726 532 (71) (483)
Deferred revenue......................... 848 580 1,205 (207) (439)
Other liabilities........................ (279) -- -- -- --
------- ------- -------- -------- --------
Net cash provided by operating
activities.......................... 734 3,829 885 1,769 181
------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash purchased in business acquisition...... -- -- 559 559 --
Acquisitions of property and equipment...... (281) (3,101) (2,938) (2,282) (3,656)
------- ------- -------- -------- --------
Net cash used in investing
activities.......................... (281) (3,101) (2,379) (1,723) (3,656)
------- ------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt........................... (1,464) -- -- -- --
Borrowings from HNC Software Inc. .......... 1,950 5,467 41,747 29,045 46,892
Repayments to HNC Software Inc. ............ -- (5,173) (42,294) (30,259) (43,331)
------- ------- -------- -------- --------
Net cash provided by (used in)
financing activities................ 486 294 (547) (1,214) 3,561
------- ------- -------- -------- --------
Effect of exchange rate changes on cash....... (3) (12) (13) 11 (2)
------- ------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................. 936 1,010 (2,054) (1,157) 84
Cash and cash equivalents at beginning of
period...................................... 523 1,459 2,469 2,469 415
------- ------- -------- -------- --------
Cash and cash equivalents at end of period.... $ 1,459 $ 2,469 $ 415 $ 1,312 $ 499
======= ======= ======== ======== ========
SIGNIFICANT NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Assets purchased through issuance of debt... $ 4,710 $ -- $ -- $ -- $ --
======= ======= ======== ======== ========
Repayment of debt by HNC Software Inc....... $ 3,246 $ -- $ -- $ -- $ --
======= ======= ======== ======== ========
Net assets acquired through issuance of HNC
Software Inc. stock...................... $ -- $ -- $ 6,564 $ -- $ --
======= ======= ======== ======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid........................... $ -- $ 3 $ 67 $ 45 $ 154
======= ======= ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE> 99
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
COMBINED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETEK INFORMATION
RETEK INC. SYSTEMS, INC.
--------------- ------------------------- ACCUMULATED (ACCUMULATED
COMMON STOCK COMMON STOCK OTHER DEFICIT) TOTAL
--------------- --------------- PAID-IN COMPREHENSIVE RETAINED STOCKHOLDER'S
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) EARNINGS EQUITY
------ ------ ------ ------ ------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995....... -- $ -- -- $ -- $ -- $ -- $ (237) $ (237)
Tax benefit from stock options..... 18 18
Tax benefit from taxable pooling
(Note 4)......................... 18,397 18,397
Foreign currency translation
adjustment....................... 58 58
Net income......................... 2,233 2,233
------ ------ --- ------ ------- ----- ------- -------
BALANCE AT DECEMBER 31, 1996....... -- -- -- -- 18,415 58 1,996 20,469
Tax benefit from stock options..... 815 815
Foreign currency translation
adjustment....................... (153) (153)
Net income......................... 3,476 3,476
------ ------ --- ------ ------- ----- ------- -------
BALANCE AT DECEMBER 31, 1997....... -- -- -- -- 19,230 (95) 5,472 24,607
Acquisition of Retek Inc. by HNC
Software Inc..................... 1 6,564 6,564
Tax benefit from stock options..... 1,060 1,060
Foreign currency translation
adjustment....................... (93) (93)
Net income......................... 3,878 3,878
------ ------ --- ------ ------- ----- ------- -------
BALANCE AT DECEMBER 31, 1998....... 1 6,564 -- -- 20,290 (188) 9,350 36,016
Tax benefit from stock options
(unaudited)...................... 190 190
Foreign currency translation
adjustment (unaudited)........... (219) (219)
Net income (unaudited)............. 5,093 5,093
------ ------ --- ------ ------- ----- ------- -------
BALANCE AT SEPTEMBER 30, 1999
(UNAUDITED)...................... 1 $6,564 -- $ -- $20,480 $(407) $14,443 $41,080
====== ====== === ====== ======= ===== ======= =======
<CAPTION>
COMPREHENSIVE
INCOME
-------------
<S> <C>
BALANCE AT DECEMBER 31, 1995.......
Tax benefit from stock options.....
Tax benefit from taxable pooling
(Note 4).........................
Foreign currency translation
adjustment....................... $ 58
Net income......................... 2,233
-------
BALANCE AT DECEMBER 31, 1996....... $ 2,291
=======
Tax benefit from stock options.....
Foreign currency translation
adjustment....................... $ (153)
Net income......................... 3,476
-------
BALANCE AT DECEMBER 31, 1997....... $ 3,323
=======
Acquisition of Retek Inc. by HNC
Software Inc.....................
Tax benefit from stock options.....
Foreign currency translation
adjustment....................... $ (93)
Net income......................... 3,878
-------
BALANCE AT DECEMBER 31, 1998....... $ 3,785
=======
Tax benefit from stock options
(unaudited)......................
Foreign currency translation
adjustment (unaudited)........... $ (219)
Net income (unaudited)............. 5,093
-------
BALANCE AT SEPTEMBER 30, 1999
(UNAUDITED)...................... $ 4,874
=======
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE> 100
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
The Company
Retek Inc. (formerly Retek Logistics, Inc.) and Retek Information Systems,
Inc. (collectively referred to as the "Company" or "Retek") are wholly owned
subsidiaries of HNC Software Inc. ("HNC"). Retek Inc. was acquired by HNC in
March 1998 in a transaction that was accounted for under the purchase method of
accounting by HNC. Retek Information Systems, Inc. was acquired by HNC in
November 1996 in a transaction that was accounted for under the
pooling-of-interests method of accounting by HNC. In April 1997, Neil Thall
Associates, Inc. ("NTA"), formerly a wholly owned subsidiary of HNC, which was
formed in 1991, was merged with the business of Retek Information Systems, Inc.
Retek Inc. and Retek Information Systems, Inc. are headquartered in Minneapolis,
Minnesota.
Retek Inc. develops warehouse management software solutions. Retek
Information Systems, Inc., markets and supports management decision software
products for retailers and their vendors. These predictive software solutions
employ proprietary neural-network predictive decision engines, profiles,
traditional statistical modeling, business models, expert rules and context
vectors to convert existing data and business experiences into meaningful
recommendations and actions.
Basis of Presentation
The combined financial statements reflect the combined financial position,
results of operations and cash flows of the companies as if Retek Inc. and Retek
Information Systems, Inc. were combined. The combined financial statements
include the accounts of Retek Inc. for the periods after its acquisition by HNC
in March 1998 and the accounts of Retek Information Systems, Inc. and its wholly
owned subsidiaries for all periods presented. The combined financial statements
also include the financial position, results of operations and cash flows of NTA
for all periods presented. The financial statements have been prepared using
HNC's historical basis in the assets and liabilities and historical results of
operations of each of the entities which comprise the Company's business. All
significant intercompany transactions and balances have been eliminated.
General corporate overhead related to HNC's corporate headquarters and
common support divisions have been allocated to the Company based on the
proportion of the Company's revenues and headcount to HNC's consolidated
revenues and headcount. Management believes these allocations reasonably
approximate the costs incurred by HNC on behalf of the Company's operations and
the costs that would have been incurred if the Company had performed these
functions as a stand-alone entity. Subsequent to the sale of a minority interest
in the Company through a public offering, the Company expects to have its own
staff perform necessary functions using its own resources or purchased services
and will be responsible for the costs and expenses associated with the
management of a separate publicly held corporation.
The Company's financing activities are represented by cash transactions
with HNC and are reflected in the payable to HNC Software Inc. Activity in the
payable to HNC Software Inc. primarily relates to cash activity with HNC as well
as cost allocations and other intercompany charges to the Company from HNC.
The financial information included herein may not necessarily reflect the
combined results of operations, financial position, results of operations and
cash flows of the Company in the future or what it would have been had it been a
stand-alone separate entity from HNC during the periods presented.
F-7
<PAGE> 101
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following unaudited pro forma information presents the combined results
of operations of the Company as if the acquisition of Retek Inc. by HNC had
occurred on January 1, 1997 and 1998. Total net income for the year ended
December 31, 1998 includes $1,750 of acquired in-process research and
development expense from the acquisition of Retek Inc. by HNC and reduced the
pro forma basic and diluted net income per common share for the year by
approximately $0.04 per share.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Total revenues.............................................. $36,009 $56,264
Total net income............................................ $ 2,555 $ 3,234
Pro forma basic and diluted net income per common share..... $ -- $ 0.08
</TABLE>
The above unaudited pro forma information is not necessarily indicative of
the combined results of operations that would have occurred had the purchase
been made at the beginning of the periods presented or the future results of the
combined operations.
Financial Statement Preparation
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents are highly liquid investments and consist of investments
in money market accounts and commercial paper purchased with maturities of three
months or less.
Property and Equipment
Property and equipment are recorded at cost. The Company recognizes
depreciation and amortization expense using the straight-line method over the
estimated useful lives of the assets of three to seven years. The Company
amortizes leasehold improvements over the shorter of their estimated useful
lives or the remaining term of the related lease. Repair and maintenance costs
are charged to expense as incurred. Depreciation and amortization expense of
property and equipment was $162, $569 and $1,268 for the years ended December
31, 1996, 1997 and 1998, respectively, and $888 and $1,594 for the nine months
ended September 30, 1998 and 1999 (unaudited), respectively.
Capitalized Software
Development costs for software to be licensed or sold that are incurred
from the time technological feasibility is established until the product is
available for general release to customers are capitalized and reported at the
lower of cost or net realizable value. Through September 30, 1999, no
significant amounts were expended subsequent to reaching technological
feasibility.
F-8
<PAGE> 102
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Intangible Assets
Retek Inc. was acquired by HNC in exchange for 143 shares of HNC common
stock, 14 of which are subject to an escrow to secure certain indemnification
obligations of the former stockholders plus the contingent right, subject to the
achievement of certain financial objectives during calendar 1998 and 1999, to
receive certain additional shares of HNC common stock. In April 1999, HNC issued
an additional 45 shares of HNC common stock for the achievement of these
financial objectives during calendar 1998, which was recorded as an addition to
goodwill of $1,476 in the combined financial statements in 1998. However, if
such financial objectives are achieved by Retek Inc. during calendar year 1999
and additional shares of HNC common stock are issued, such issuance will not be
reflected in the financial position or results of operations of the Company in
the future if HNC's share of ownership of the Company at the time of the
issuance is less than 95%. If HNC continues to own 100% of the Company, such
issuance will be reflected as an increase in intangible assets. The application
of the purchase method of accounting for the acquisition resulted in an excess
of cost over net assets acquired of approximately $6,564, of which $4,031 has
been allocated to intangible assets and $1,750 has been allocated to in-process
research and development.
In conjunction with the purchase, the Company recorded various intangible
assets. Intangible assets are comprised of purchased software and other rights
that are stated at lower of cost or net realizable value. Intangible assets are
amortized as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE AMORTIZATION METHOD
------------- -------------------
<S> <C> <C>
Purchased software costs.................................. Straight-line 36 to 42 months
Assembled work force...................................... Straight-line 3 years
Customer base............................................. Straight-line 5 years
Trademarks................................................ Straight-line 5 years
Goodwill.................................................. Straight-line 5 years
</TABLE>
Amortization expense of intangible assets was $642, $809, and $1,152 for
the years ended December 31, 1996, 1997 and 1998, respectively, and $812 and
$1,188 for the nine months ended September 30, 1998 and 1999 (unaudited),
respectively.
Long-Lived Assets
The Company investigates potential impairments of long-lived assets,
certain identifiable intangibles and associated goodwill when events or changes
in circumstances have made recovery of an asset's carrying value unlikely. An
impairment loss would be recognized if the sum of the expected future net cash
flows were less than the carrying amount of the asset. No such impairments of
long-lived assets existed through September 30, 1999.
Revenue Recognition
The Company recognizes software license revenue upon meeting each of the
following criteria: execution of a written purchase order, license agreement or
contract; delivery of software and authorization keys; the license fee is fixed
and determinable; collectibility of the proceeds is assessed as being probable;
and vendor specific objective evidence exists to allocate the total fee to
elements of the arrangement. Vendor-specific objective evidence is based on the
price charged when an element is sold separately, or if not yet sold separately,
is established by authorized management. All elements of each order are valued
at
F-9
<PAGE> 103
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
the time of revenue recognition. For sales made through distributors, resellers
and original equipment manufacturers, the Company recognizes revenue at the time
these partners report to the Company that they have sold the software to the end
user and all revenue recognition criteria have been met. Service revenue
includes maintenance revenue, which is deferred and recognized ratably over the
maintenance period, and revenue from consulting and training services, which is
recognized as services are performed. Consulting services are customarily billed
at a fixed daily rate plus out-of-pocket expenses.
The Company's revenue from contract development services is generally
recognized as the services are performed using the percentage of completion
method based on costs incurred to date compared to total estimated costs at
completion. Amounts received under contracts in advance of performance are
recorded as deferred revenue and are generally recognized within one year from
receipt. Contract losses are recorded as a charge to income in the period such
losses are first identified. Unbilled accounts receivable are stated at
estimated realizable value.
Deferred revenue consists primarily of deferred maintenance revenue.
During the first quarter of 1998, the Company adopted Statement of Position
No. 97-2 ("SOP 97-2"), "Software Revenue Recognition." SOP 97-2 provides
guidance for software revenue recognition. The adoption of SOP 97-2 did not have
a significant impact on the Company's combined financial position or results of
operations. During the second quarter of 1998, the Company adopted Statement of
Position No. 98-4 ("SOP 98-4"), "Deferral of the Effective Date of a Provision
of SOP 97-2, Software Revenue Recognition." This SOP defers for one year the
application of several passages in SOP 97-2. The adoption of SOP 98-4 did not
have a significant impact on the Company's combined financial position or
results of operations.
Income Taxes
The taxable income or loss of the Company is included in the consolidated
tax return of HNC. Income taxes are computed on a stand-alone basis under the
provisions of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." In accordance with HNC's policy, the current tax receivable or payable
is included in the amount due to or due from HNC. A deferred income tax asset or
liability is computed for the expected future impact of differences between the
financial reporting and tax bases of assets and liabilities as well as the
expected future tax benefit to be derived from tax loss and tax credit
carryforwards. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount "more likely than not" to be realized in
future tax returns. Tax rate changes are reflected in income during the period
such changes are enacted.
Foreign Currency Translation
The combined financial statements of the Company's international operations
are translated into U.S. dollars using period-end exchange rates for assets and
liabilities and average exchange rates during the period for revenues and
expenses. Cumulative translation gains and losses are excluded from the combined
results of operations and are recorded as a separate component of stockholder's
equity. Gains and losses resulting from foreign currency transactions
(transactions denominated in a currency other than the entity's local currency)
are included in the combined statement of income and are not material.
F-10
<PAGE> 104
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Diversification of Credit Risk
The Company's financial instruments that are subject to concentrations of
credit risk consist primarily of cash equivalents and accounts receivable, which
are generally not collateralized. The Company's policy is to place its cash and
cash equivalents with high credit quality financial institutions in order to
limit the amount of its credit exposure. The Company's software license and
installation agreements and commercial development contracts are primarily with
large customers in the retail industries. The Company maintains allowances for
potential credit losses.
Disclosures about Fair Value of Financial Instruments
The carrying amounts of cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate fair value because of the short-term
maturities of these financial instruments.
Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 ("FAS 130"), "Reporting Comprehensive
Income." FAS 130 requires the Company to report in the combined financial
statements, in addition to net income, comprehensive income and its components
including foreign currency items and unrealized gains and losses on certain
investments in debt and equity securities. Comprehensive income is defined as
"the change in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources." It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners.
Segment Reporting
For the year ended December 31, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131 ("FAS 131"), "Disclosures about Segments
of an Enterprise and Related Information" (see Note 6). This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Under FAS 131, operating segments are to
be determined consistent with the way that management organizes and evaluates
financial information internally for making operating decisions and assessing
performance.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards No. 133 ("FAS 133"), "Accounting for
Derivative Instruments and Hedging Activities" which is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. This statement
establishes a new model for accounting for derivatives and hedging activities.
Under FAS 133, all derivatives must be recognized as assets and liabilities and
measured at fair value. In July 1999, the FASB issued Statement of Accounting
Standards No. 137 "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133" which
defers the effective date to all fiscal quarters of fiscal years beginning after
June 15, 2000. The adoption of FAS 133 is not expected to have a significant
impact on the Company's combined financial position or results of operations.
F-11
<PAGE> 105
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In January 1999, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-9 ("SOP 98-9"), "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." This SOP
retains the limitations of SOP 97-2 on what constitutes vendor-specific
objective evidence of fair value. SOP 98-9 will be effective for transactions
entered into in fiscal years beginning after March 15, 1999. The adoption of SOP
98-9 is not expected to have a significant impact on the Company's combined
financial position or results of operations.
Net Income Per Share
Historical net income per share is not presented because such amounts are
not determinable due to the presentation of the combined capital structures of
two entities in these financial statements.
Reorganization
In September 1999, Retek Logistics was reincorporated as a Delaware
corporation and renamed Retek Inc. In connection with the reincorporation, each
share of Retek Logistics, Inc.'s common stock was converted to approximately
.000447 shares of Retek Inc.'s common stock. Due to the reorganization, the
outstanding shares have been restated retroactively for all periods since Retek
Inc.'s acquisition by HNC in March 1998.
Pro Forma Financial Data (unaudited)
The unaudited pro forma information presented in the accompanying balance
sheet as of September 30, 1999 reflects the expected contribution of all
outstanding common stock of Retek Information Systems, Inc. to Retek Inc. and
the expected 40 for .001 stock split of Retek Inc. common shares. In October
1999, the Company amended its certificate of incorporation to authorize the
issuance of 150,000 shares of common stock and 5,000 shares of preferred stock.
Pro Forma Net Income Per Share (unaudited)
Basic pro forma net income per share (unaudited) is calculated based upon
the number of shares of Retek Inc. expected to be outstanding assuming the
expected 40 for .001 stock split of Retek Inc. common shares. Diluted pro forma
net income per share (unaudited) is calculated assuming the expected 40 for 1
stock split of the Retek Inc. common shares and under the treasury stock method,
1,635 additional common shares will be outstanding assuming all of the 7,086
options for common shares are exercised at $10 per share and the net proceeds
from their exercise are used to repurchase shares at $13 per share.
Interim Results (unaudited)
The accompanying combined statement of income and the related combined
statement of cash flows for the nine months ended September 30, 1998 and 1999
are unaudited. In the opinion of management, these combined statements have been
prepared on the same basis as the audited combined financial statements included
herein and include all adjustments, consisting of only normal recurring
adjustments, necessary for the fair statement of results of the interim periods.
The data disclosed in these notes to combined financial statements for this
period is also unaudited.
F-12
<PAGE> 106
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2 -- COMPOSITION OF CERTAIN COMBINED FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1997 1998 1999
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable, net:
Billed................................................. $ 9,167 $18,735 $28,950
Unbilled............................................... 3,187 4,886 4,854
------- ------- -------
12,354 23,621 33,804
Less allowance for doubtful accounts..................... (382) (1,571) (3,440)
------- ------- -------
$11,972 $22,050 $30,364
======= ======= =======
</TABLE>
The following is a rollforward of the activity within the allowance for
doubtful accounts:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1996 1997 1998 1999
---- ----- ------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at beginning of period..................... $ -- $ 299 $ 382 $1,571
Provisions......................................... 309 212 1,652 1,899
Write-offs......................................... (10) (129) (463) (30)
---- ----- ------ ------
Balance at end of period........................... $299 $ 382 $1,571 3,440
==== ===== ====== ======
</TABLE>
F-13
<PAGE> 107
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Unbilled accounts receivable represent revenue recorded in excess of
amounts billable pursuant to contract provisions and generally become billable
at contractually specified dates or upon the attainment of milestones. Unbilled
amounts are expected to be collected within one year.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1997 1998 1999
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Other current assets:
Other receivables...................................... $ 864 $ 1,976 $ 922
Prepaid expenses....................................... 136 484 1,170
VAT tax receivable..................................... 158 246 598
------- ------- -------
$ 1,158 $ 2,706 $ 2,690
======= ======= =======
Property and equipment, net:
Computer equipment..................................... $ 1,236 $ 3,093 4,831
Furniture and fixtures................................. 1,878 2,943 4,468
Leasehold improvements................................. 532 749 1,137
------- ------- -------
3,646 6,785 10,436
Less accumulated depreciation and amortization......... (640) (1,898) (3,487)
------- ------- -------
$ 3,006 $ 4,887 $ 6,949
======= ======= =======
Intangible assets, net:
Purchased software costs............................... $ 2,472 $ 3,572 $ 3,667
Goodwill............................................... 109 2,362 2,362
Other.................................................. -- 570 570
------- ------- -------
2,581 6,504 6,559
Less accumulated amortization.......................... (1,451) (2,494) (3,682)
------- ------- -------
$ 1,130 $ 4,010 $ 2,917
======= ======= =======
Accrued liabilities:
Payroll and related benefits........................... $ 1,842 $ 2,875 $ 1,764
Other.................................................. 298 95 723
------- ------- -------
$ 2,140 $ 2,970 $ 2,487
======= ======= =======
</TABLE>
F-14
<PAGE> 108
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3 -- COMMITMENTS
At December 31, 1998, the Company was obligated through 2004 under
noncancelable operating leases for its facilities and certain equipment as
follows:
<TABLE>
<CAPTION>
NET FUTURE
FUTURE MINIMUM LESS SUBLEASE MINIMUM LEASE
LEASE PAYMENTS INCOME PAYMENTS
-------------- ------------- -------------
<S> <C> <C> <C>
1999........................................... $1,144 $630 $514
2000........................................... 966 -- 966
2001........................................... 776 -- 776
2002........................................... 770 -- 770
2003........................................... 742 -- 742
2004........................................... 475 -- 475
</TABLE>
The lease for the Company's headquarters provides for two options to extend
the term for five years each with certain changes to the terms of the lease
agreement. Rent expense under operating leases for the years ended December 31,
1996, 1997 and 1998 was approximately $132, $229 and $758, respectively, net of
sublease income of $0, $261, and $886, for the years ended December 31, 1996,
1997 and 1998, respectively.
NOTE 4 -- INCOME TAXES
Income before income tax (benefit) provision was taxed under the following
jurisdictions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
------- ------ ------
<S> <C> <C> <C>
Domestic.................................................... $(1,796) $5,631 $6,276
Foreign..................................................... 3,214 1,012 1,823
------- ------ ------
$ 1,418 $6,643 $8,099
======= ====== ======
</TABLE>
The income tax (benefit) provision is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
------- ------ ------
<S> <C> <C> <C>
CURRENT:
Federal................................................... $ 389 $ 795 $2,258
State..................................................... -- 168 699
Foreign................................................... 51 233 511
DEFERRED:
Federal................................................... (743) 1,070 489
State..................................................... (215) 722 144
Foreign................................................... (297) 179 120
------- ------ ------
$ (815) $3,167 $4,221
======= ====== ======
</TABLE>
F-15
<PAGE> 109
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Deferred tax assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Taxable pooling-of-interests basis difference.......... $17,085 $15,857
Net operating loss carryforwards....................... 185 31
Tax credit carryforwards............................... 786 344
Allowance for doubtful accounts........................ 142 631
Depreciation........................................... -- (175)
Intangible assets...................................... -- (462)
Bonus accrual.......................................... -- 306
Commission advances.................................... -- 277
Other.................................................. (37) 123
------- -------
Net deferred tax asset............................... $18,161 $16,932
======= =======
</TABLE>
During 1996, the Company released its deferred tax asset valuation
allowance of $121 that existed at December 31, 1995 related to the Company's
deferred tax based on management's assessment that it was more likely than not
that the Company would realize those assets in future periods due to
improvements in its operating results.
During 1996, the Company made an Internal Revenue Code Section 338 election
for federal and state tax purposes, resulting in the treatment of the
acquisition of Retek Information Systems, Inc. by HNC as a taxable transaction,
whereby the tax bases of the acquired assets and liabilities were adjusted to
their fair values as of the date of the acquisition. As the purchase price
exceeded the carrying value of the net assets acquired by approximately $46,000,
the Company recorded a deferred tax asset in the amount of $18,397.
A reconciliation of the income tax (benefit) provision to the amount
computed by applying the statutory federal income tax rate to income before
income tax (benefit) provision is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ------ ------
<S> <C> <C> <C>
Amounts computed at statutory federal rate......... $ 482 $2,259 $2,754
State income taxes, net of federal benefit....... (142) 791 740
Tax credit carryforwards generated............... (89) (116) (429)
Release of valuation allowance................... (121)
Non-deductible acquired technology and other non-
deductible acquisition costs.................. -- -- 1,004
Foreign income taxes............................. (950) 68 11
Other, net....................................... 5 165 141
----- ------ ------
Income tax provision (benefit)..................... $(815) $3,167 $4,221
===== ====== ======
</TABLE>
The Company had foreign net operating loss carryforwards of approximately
$76 at December 31, 1998. The Company also has approximately $344 of foreign tax
credit carryforwards at December 31, 1998.
F-16
<PAGE> 110
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5 -- ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the acquisition of Retek Inc. by HNC, acquired
in-process research and development of $1,750 was charged to operations on the
acquisition date. The Company's products may be classified into two categories:
Nautilus, an off-the-shelf warehouse management software system designed to
provide the tools needed to control the course of warehouse operations and
Nautilus CBT, an operational tutorial database which guides the user through
Nautilus operations. The classification of the technology as complete or under
development was made in accordance with the guidelines of Statement of Financial
Accounting Standards No. 86, Statement of Financial Accounting Standards No. 2
and Financial Accounting Standards Board Interpretation No. 4. At the time of
acquisition, Retek Logistics, Inc. had a number of new software products under
development including Nautilus Versions 6.0 and 7.0 and Nautilus CBT. Nautilus
Version 6.0 and Nautilus CBT were both completed during 1998 and Nautilus
Version 7.0 was completed during 1999.
NOTE 6 -- SEGMENT INFORMATION
The Company operates in one reportable segment as defined in FAS 131. The
operations of the Company are primarily conducted in the United States, the
Company's country of domicile. Geographic data, determined by references to the
location of the Company's operations for the years ended December 31, 1996, 1997
and 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Revenue by geographic area:
United States............................................. $ 7,717 $17,070 $29,183
Canada.................................................... 990 860 6,310
United Kingdom............................................ 1,491 3,835 4,224
France.................................................... -- 3,358 1,546
Germany................................................... -- -- 1,837
South Africa.............................................. 2,628 2,476 2,706
Other..................................................... 607 3,324 9,227
------- ------- -------
Total revenue.......................................... $13,433 $30,923 $55,033
======= ======= =======
</TABLE>
The following is long-lived asset information by geographic area:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Long-lived assets by geographic area:
United States............................................. $2,174 $3,850 $8,987
Foreign................................................... 114 286 193
------ ------ ------
Total long-lived assets................................ $2,288 $4,136 $9,180
====== ====== ======
</TABLE>
The Company's foreign sales represent revenues from export sales and
international operations. Export sales include sales from the United States to
foreign countries. Export sales were $394, $2,643 and $12,414 for the years
ended December 31, 1996, 1997 and 1998, respectively. International operations
include sales by foreign operations.
F-17
<PAGE> 111
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 7 -- EMPLOYEE BENEFIT PLANS
During 1995, HNC adopted the 1995 Equity Incentive Plan (the "Incentive
Plan") and the 1995 Employee Stock Purchase Plan (the "Purchase Plan"). For
purposes of the discussion contained in the two paragraphs below, "fair market
value" means the closing price of HNC's common stock on the Nasdaq National
Market on the grant date.
The Incentive Plan provides for the issuance of up to 5,250 shares of HNC's
common stock in the form of nonqualified or incentive stock options, restricted
stock or stock bonuses to employees of HNC and its affiliates including Retek
Inc. and Retek Information Systems, Inc. Nonqualified stock options and
restricted stock may be awarded at a price not less than 85% of the fair market
value of the stock at the date of the award. Incentive stock options must be
awarded at a price not less than 100% of the fair market value of the stock at
the date of the award. Options granted under the Incentive Plan may have a term
of up to ten years. HNC has the discretion to provide for restrictions and the
lapse thereof in respect of restricted stock awards. Options typically vest at
the rate of 25% of the total grant per year over a four-year period; however,
HNC may, at its discretion, implement a different vesting schedule with respect
to any new stock option grant. At December 31, 1998, 217 shares were
exercisable.
The Purchase Plan provides for the issuance of a maximum of 400 shares of
common stock to employees of HNC and its affiliates, including Retek Inc. and
Retek Information Systems, Inc. In each purchase period eligible employees may
designate that between 2% and 10% of their cash compensation, subject to certain
limitations, be deducted from their compensation for the purchase of common
stock under the Purchase Plan. The purchase price of the shares under the
Purchase Plan is equal to 85% of the lesser of the fair market value per share
on the first date of the twelve-month offering period or the last day of each
six-month purchase period. Approximately 31% of eligible employees have
participated in the Purchase Plan in the last three years.
During 1998, HNC adopted the 1998 Stock Option Plan ("1998 Plan"). The 1998
Plan provides for the issuance of up to 1,000 shares of HNC's common stock in
the form of nonqualified stock options to employees, officers, consultants and
independent advisors of HNC and its affiliates including Retek Inc. and Retek
Information Systems, Inc. Options granted under the 1998 Plan may have a term of
up to ten years. Options typically vest at the rate of 25% of the total grant
per year over a four-year period; however, HNC may, at its discretion, implement
a different vesting schedule with respect to any new stock option grant. At
December 31, 1998, there were no shares exercisable under the 1998 Plan.
All Retek Information Systems, Inc. options, outstanding on the date of the
acquisition in 1996, were converted into options to purchase HNC's common stock
and adjusted to give effect to the acquisition exchange ratio. Retek Information
Systems, Inc. stock options are administered by HNC's Board of Directors. No
changes were made to the terms of the Retek Information Systems, Inc. options in
connection with the exchange. Those options granted vest ratably over periods
from one to four years and have a term of up to ten years. At December 31, 1998,
options to purchase 13 shares were exercisable.
F-18
<PAGE> 112
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Transactions relating to employees of the Company under HNC's stock option
and purchase plans during the years ended December 31, 1996, 1997 and 1998,
including options converted from the Retek Logistics, Inc. stock option plan,
are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996 1997 1998
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year....... 249 $ 2.34 494 $21.19 981 $28.89
Options granted...................... 423 27.11 624 32.13 743 35.36
Options exercised.................... (115) 0.70 (71) 8.94 (108) 16.56
Options canceled..................... (63) 23.62 (66) 23.23 (238) 31.96
------ ------ ------
Outstanding at end of year............. 494 21.19 981 28.89 1,378 32.81
====== ====== ======
Options exercisable at end of year..... 34 93 233
Weighted average fair value of options
granted during the year.............. $19.69 $19.50 $21.50
</TABLE>
The following table summarizes information about employee stock options
relating to employees of the Company outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED -------------------------
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE OUTSTANDING AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1998 LIFE (IN YEARS) PRICE 1998 PRICE
--------------- -------------- --------------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ 0.92 to $29.75...................... 283 8.01 $24.04 97 $23.08
30.13 to 31.25...................... 204 8.53 30.42 63 30.52
31.44 to 32.56...................... 222 9.14 32.04 5 31.73
32.63 to 35.81...................... 207 8.98 34.51 27 34.83
35.88 to 37.75...................... 218 9.17 37.43 12 37.28
37.88 to 41.38...................... 202 9.12 39.46 26 38.80
42.19 to 46.75...................... 42 9.25 43.33 3 45.25
----- ---
0.92 to 46.75...................... 1,378 8.80 32.81 233 29.40
===== ===
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock-based compensation. No compensation
expense has been recognized for its employee stock option grants, which are
fixed in nature, as the options have been granted at fair market value. No
compensation expense has been recognized for the Purchase Plan. Had compensation
cost for the Company's stock-based compensation awards issued during 1998 and
1997 been determined based on the fair value at the grant dates of awards
consistent with the method of Financial Accounting Standards
F-19
<PAGE> 113
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Board Statement No. 123 ("FAS 123"), the Company's net income and basic and
diluted pro forma net income per common share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Net income (loss):
As reported............................................... $2,233 $3,476 $ 3,878
Pro forma................................................. 1,743 (893) (2,758)
Basic and diluted net income per common share:
As reported............................................... 0.10
Pro forma................................................. (0.07)
Diluted net income per common share:
As reported............................................... -- -- 0.10
Pro forma................................................. -- -- (0.07)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumption used for grants during the years ended December 31, 1996, 1997 and
1998, respectively: dividend yield of 0.0% for all three years; risk-free
interest rates of 6.03%, 6.10% and 5.14%; expected volatilities of 70%, 65% and
65% (0% for options granted by Retek Information Systems, Inc. prior to its
acquisition by HNC); and expected lives of 3.5, 3.0 and 3.0 years. The fair
value of the employees' purchase rights pursuant to the Purchase Plan is
estimated using the Black-Scholes model with the following assumptions: dividend
yield of 0.0% for all three years; risk-free interest rates of 5.36%, 5.32% and
5.23%; expected volatilities of 70%, 65% and 65%; and an expected life of six
months for all three years. The weighted average fair value of those purchase
rights granted in 1996, 1997 and 1998 was $8.73, $14.23 and $16.32,
respectively.
NOTE 8 -- CONTINGENCIES
Various claims arising in the course of business, seeking monetary damages
and other relief are pending. The amount of the liability, if any, from such
claims cannot be determined with certainty; however, in the opinion of
management, the ultimate liability for such claims will not have a material
adverse effect on the Company's combined financial position, results of
operations or cash flows.
NOTE 9 -- RELATED PARTY TRANSACTIONS
As described in Note 1, the combined financial statements include
significant transactions with HNC for services such as treasury, cash
management, employee benefits, taxes, financial reporting, legal, corporate
marketing and general corporate services. HNC charged the Company $449, $348 and
$953 for such expenses during the years ended December 31, 1996, 1997, 1998,
respectively, and $590 and $1,682 for the nine months ended September 30, 1998
and 1999 (unaudited), respectively. These charges were principally included in
sales and marketing expenses and general and administrative expenses. Management
believes these allocations approximate the costs that would have been incurred
had the Company performed these functions as a stand-alone entity.
Beginning in 1998, the Company utilized research and development services
of HNC. HNC charged the Company $1,383 for such expenses during the year ended
December 31, 1998, and $1,033 and $101 for the nine months ended September 30,
1998 and 1999 (unaudited), respectively. Management believes these allocations
approximate the costs that would have been incurred had the Company performed
these functions as a stand-alone entity.
Certain of the Company's employees participate in the HNC Purchase Plan.
Amounts included in the payable to HNC Software Inc. related to the Purchase
Plan were $38, $181 and $526 as of December 31,
F-20
<PAGE> 114
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996, 1997 and 1998, respectively, and $526 and $887 as of September 30, 1998
and 1999 (unaudited), respectively.
In conjunction with the acquisition of Retek Information Systems, Inc. in
1996, HNC repaid $3,246 of debt to a third party on Retek Information System
Inc.'s behalf.
Employees of the Company also participate in an HNC-sponsored 401(k) plan.
The Company matched employee contributions up to the lesser of 50% of the
employee contribution or eight hundred dollars. Contributions were $0, $60 and
$120 for the years ended December 31, 1996, 1997 and 1998, respectively, and $0
and $0 for the nine months ended September 30, 1998 and 1999 (unaudited),
respectively.
HNC also provides a treasury service for affiliated companies, and cash
transferred between companies is recorded in the payable to HNC.
The amount payable to HNC Software Inc. includes allocations of expenses
for all corporate services, income taxes and other intercompany transactions,
plus cash advances net of repayments. The amount payable does not bear interest.
The average monthly balances due to HNC for the years ended December 31, 1996,
1997 and 1998 were $2,453, $5,370 and $6,728, respectively, and for the nine
months ended September 30, 1998 and 1999 (unaudited) were $7,449 and $8,986,
respectively.
The change in the amount payable to HNC includes the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1997 1998 1998 1999
------ ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period................. $1,001 $ 6,197 $ 6,491 $ 6,491 $ 5,944
Cost allocations payable to HNC................ 487 529 2,862 2,149 2,670
Income taxes payable to HNC.................... 8 231 1,934 799 3,152
Cash transfers from HNC........................ 1,455 4,707 36,951 26,097 41,070
Cash transfers to HNC.......................... -- (5,173) (42,294) (30,259) (43,331)
Repayment of debt by HNC....................... 3,246 -- -- -- --
------ ------- -------- -------- --------
Net change during the period................. 5,196 294 (547) (1,214) 3,561
------ ------- -------- -------- --------
Balance at end of period....................... $6,197 $ 6,491 $ 5,944 $ 5,277 $ 9,505
====== ======= ======== ======== ========
</TABLE>
NOTE 10 -- SUBSEQUENT EVENTS
In September 1999, HNC assigned to Retek Information Systems, Inc. its
rights and interests in, to and under an option agreement ("Agreement") by and
between HNC and WebTrak Limited ("WebTrak"), a United Kingdom company. Upon
assignment, the Agreement provides Retek Information Systems, Inc. with the
option to purchase either (i) all assets of WebTrak, or (ii) all the issued and
outstanding shares of WebTrak. The purchase price under the option is the
greater of $8,000 or 2.7 times gross revenues, as defined, of WebTrak for the
twelve months preceding the exercise of the option. The purchase option is
exercisable by Retek Information Systems, Inc. during the period September 30,
1999 to December 31, 1999. Management intends to exercise this purchase option
during the exercise period, anticipates paying $8,000 for the purchase and does
not anticipate incurring significant transaction costs in connection with the
exercise.
F-21
<PAGE> 115
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 11 -- SUBSEQUENT EVENTS (UNAUDITED)
In October 1999, Retek Information Systems, Inc. exercised its option to
purchase WebTrak for $8,000. In connection with the purchase, Retek Information
Systems, Inc. issued $5,333 in notes payable in cash and a $2,667 note payable
in cash or Retek Inc. common stock at the option of holder. The notes are due on
November 26, 1999.
In October 1999, the Board of Directors of Retek Inc. adopted the 1999
Directors Stock Option Plan (the "Directors Plan"), the 1999 Equity Incentive
Plan and the 1999 Employee Stock Purchase Plan (the "Purchase Plan"). These
plans are administered by a committee of the Board of Directors (the
"Committee").
The Directors Plan provides for the issuance of up to 400 nonqualified
stock options to the Company's outside directors. Under the provisions of the
Directors Plan, options to purchase 25 shares of the Company's common stock will
be granted to outside directors upon their becoming a member of the Board of
Directors and 7.5 additional options will be granted on each anniversary of the
initial grant, so long as they remain on the Board of Directors. Options under
the Directors Plan will be granted at the fair value of the stock at the grant
date and vest entirely at the end of a period of one year from the date of
grant.
The 1999 Equity Incentive Plan provides for the Committee to award up to
9,000 shares of the Company's common stock in the form of nonqualified or
incentive stock options, stock appreciation rights, restricted stock or stock
bonuses. Nonqualified stock options may be awarded at a price not less than 85%
of the fair market value of the stock at the date of the award. Incentive stock
options must be awarded at a price not less than 100% of the fair market value
of the stock at the date of the award or 110% of fair market value of the stock
at the date of the awards to more than 10% stockholders. Options and stock
appreciation rights granted under the Incentive Plan may have a term of up to 10
years. The Committee has the discretion to award restricted stock and stock
bonuses as they deem appropriate.
The Purchase Plan provides for the issuance of a maximum of 700 shares of
common stock. Each purchase period, eligible employees may designate between 2%
and 15% of their cash compensation, subject to certain limitations, to be
deducted from their pay for the purchase of common stock under the Purchase
Plan. The purchase price of the shares under the Purchase Plan is equal to 85%
of the lesser of the fair market value per share, as defined by the Purchase
Plan, on the first day of the two year offering period and the date of purchase.
In October 1999, the Company granted stock options to its employees, under
the Company's 1999 Equity Incentive Plan, to purchase approximately 6,986 shares
of the Company's common stock. Of the approximately 6,986 options granted, 6,239
were granted in connection with the exchange of HNC options by the Company's
employees. These options were granted at an exercise price of $10 per share.
Based upon an estimated fair market value of $13 per share for the underlying
common stock, the Company will recognize compensation expense of approximately
$20,958 over the option vesting period. Due to the terms of the vesting,
compensation will be accelerated in the early years and is expected to result in
the recognition of approximately $1,819, $10,042, $5,240, $2,765 and $1,092 of
compensation expense for the years ended December 31, 1999, 2000, 2001, 2002 and
2003, respectively.
In November 1999, the Company granted stock options to certain directors,
under the Retek 1999 Equity Incentive Plan and the Retek 1999 Directors Stock
Option Plan, to purchase approximately 100 shares of the Company's common stock.
These options were granted at an exercise price of $10 per share. Based upon an
estimated fair market value of $13 per share for the underlying common stock,
the Company will
F-22
<PAGE> 116
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
recognize compensation expense of $46, $238 and $17 during the years ended
December 31, 1999, 2000 and 2001, respectively.
In November 1999, the Company entered into a new non-cancelable operating
lease for its corporate headquarters which commences in October 2001. The lease
includes two options to expand the facilities and terminates in March 2014. As a
result of this lease, the lease obligations for the years ended December 31 have
increased by:
<TABLE>
<CAPTION>
NET FUTURE
MINIMUM
LEASE PAYMENTS
--------------
<S> <C>
1999................................................... $ --
2000................................................... --
2001................................................... 539
2002................................................... 2,296
2003................................................... 2,343
2004................................................... 2,343
Thereafter............................................. 24,922
</TABLE>
F-23
<PAGE> 117
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
RETEK LOGISTICS, INC.
In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows and of changes in stockholders' equity and
comprehensive income present fairly, in all material respects, the financial
position of Retek Logistics, Inc. (formerly Practical Control Systems
Technologies, Inc.) at December 31, 1996 and 1997, and March 31, 1998, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1997, and the three months in the period ended March
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
San Diego, California
September 9, 1999
F-24
<PAGE> 118
RETEK LOGISTICS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------- ---------
1996 1997 1998
------ ------ ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 388 $ 413 $ 559
Accounts receivable, net.................................. 560 1,061 997
Accounts receivable, affiliates........................... 14 -- --
Current portion of deferred income taxes.................. 9 13 13
Other current assets...................................... 2 47 37
------ ------ ------
Total current assets................................... 973 1,534 1,606
Property and equipment, net................................. 380 247 211
Software development costs, net............................. 1,211 1,181 1,232
Graphic design costs, net................................... 382 183 133
Other assets................................................ 33 55 58
------ ------ ------
$2,979 $3,200 $3,240
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 27 $ 79 $ 126
Accounts payable, affiliates.............................. 194 178 --
Accrued liabilities....................................... 249 250 352
Deferred revenue.......................................... 106 323 412
Notes payable............................................. 180 -- --
------ ------ ------
Total current liabilities.............................. 756 830 890
Deferred income taxes....................................... 457 493 514
Stockholders' equity:
Common stock, without par value -- 5,000,000 shares
authorized:
2,237,683 shares issued and outstanding................ 1 1 1
Paid-in capital........................................... 2,238 2,238 2,238
Retained earnings......................................... (410) (299) (340)
Treasury stock at cost, 144 shares........................ (63) (63) (63)
------ ------ ------
Total stockholders' equity............................. 1,766 1,877 1,836
------ ------ ------
$2,979 $3,200 $3,240
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 119
RETEK LOGISTICS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------- ---------------------
1996 1997 1997 1998
------ ------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Licensing and other revenue........................ $5,108 $5,086 $ 957 $1,231
Operating expenses:
Cost of sales.................................... 1,662 1,880 297 431
Selling, general and administrative.............. 3,812 2,813 723 670
------ ------ ------ ------
Total operating expenses...................... 5,474 4,693 1,020 1,101
------ ------ ------ ------
(Loss) income from operations................. (366) 393 (63) 130
------ ------ ------ ------
Other income (expense), net........................ 129 (211) (1) (104)
Interest expense................................... 49 10 -- --
------ ------ ------ ------
(Loss) income before income taxes............. (286) 172 (64) 26
Income tax expense (benefit)....................... 448 61 (24) 67
------ ------ ------ ------
Net (loss) income............................. $ (734) $ 111 $ (40) $ (41)
====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 120
RETEK LOGISTICS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------- --------------------
1996 1997 1997 1998
------ ------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income.................................... $ (734) $ 111 $ (40) $ (41)
Adjustments to reconcile net (loss) income to net
cash provided (used in) by operating activities:
Depreciation and amortization........................ 509 634 153 155
Loss on disposition of property and equipment........ -- 38 -- --
Increase in bad debts provision...................... -- 15 -- --
Deferred income taxes................................ 448 31 (23) 21
Changes in operating assets and liabilities:
Accounts receivable, trade........................ 85 (516) 59 64
Accounts receivable, affiliates................... 12 14 -- --
Other assets...................................... 107 (57) (163) (113)
Accounts payable.................................. (100) 53 105 47
Accounts payable, affiliates...................... 156 (16) (194) (178)
Unearned revenue.................................. (92) 216 (10) 89
Accrued expenses.................................. 42 1 (214) 102
------ ------ ------ ------
Net cash provided by (used in) operating
activities................................... 433 524 (327) 146
------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Software development costs........................... (309) (236) -- --
Acquisition of non-compete agreement and related
assets............................................ -- (61) -- --
Purchase of property and equipment................... (73) (32) (2) --
Proceeds from sale of property and equipment......... -- 10 -- --
------ ------ ------ ------
Net cash used in investing activities........... (382) (319) (2) --
------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit....................................... (923) -- 185 --
Payments on debt..................................... (43) -- -- --
Payments on note payable, affiliate.................. (16) (180) (48) --
Distributions to stockholders........................ (125) -- -- --
Issuance of common stock............................. 1,303 -- -- --
------ ------ ------ ------
Net cash provided by (used in) financing
activities................................... 196 (180) 137 --
------ ------ ------ ------
Net increase in cash................................... 247 25 (192) 146
Cash balance, beginning of year........................ 141 388 388 413
------ ------ ------ ------
Cash balance, end of year.............................. $ 388 $ 413 $ 196 $ 559
====== ====== ====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest............... $ 49 $ 9 $ 3 $ --
====== ====== ====== ======
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Note payable to affiliate for purchase of equipment,
furniture and fixtures............................ $ 196 $ -- $ -- $ --
====== ====== ====== ======
Distribution of rental property to stockholders...... $ 115 $ -- $ -- $ --
====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 121
RETEK LOGISTICS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
(ACCUMULATED
COMMON STOCK DEFICIT) TOTAL
--------------- PAID-IN TREASURY RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCK EARNINGS EQUITY
------ ------ ------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995............................... 375 $ 1 $ 262 $(63) $1,237 $1,437
Issuance of common stock, net of issuance costs............ 1,863 1,303 1,303
Distributions to stockholders.............................. (240) (240)
PCS contribution to capital................................ 673 (673) --
Net and comprehensive loss................................. (734) (734)
----- ------ ------ ---- ------ ------
BALANCE AT DECEMBER 31, 1996............................... 2,238 1 2,238 (63) (410) 1,766
Net and comprehensive income............................... 111 111
----- ------ ------ ---- ------ ------
BALANCE AT DECEMBER 31, 1997............................... 2,238 1 2,238 (63) (299) 1,877
Net and comprehensive income............................... (41) (41)
----- ------ ------ ---- ------ ------
BALANCE AT MARCH 31, 1998.................................. 2,238 $ 1 $2,238 $(63) $ (340) $1,836
===== ====== ====== ==== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 122
RETEK LOGISTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
The Company
Retek Logistics, Inc. (formerly Practical Control Systems Technologies,
Inc.), an Ohio corporation (the "Company"), is a supplier of fully integrated
distribution center management software products that address the distribution
needs of the retail, wholesale and manufacturing industries.
In March 1998, the Company's stockholders approved an agreement between the
Company and HNC Software Inc. ("HNC") pursuant to which the Company's
stockholders exchanged all issued and outstanding capital stock of the Company
for HNC stock.
Use of Estimates
The preparation of the financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Income Taxes
On June 1, 1996, the Company terminated its S Corporation status and
recognized deferred tax assets and liabilities based on the differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the years in which the differences are expected to
reverse. The Company's current income tax expense is the amount of income taxes
expected to be payable for the current year. A deferred income tax asset or
liability is computed for the expected future impact of differences between the
financial reporting and tax bases of assets and liabilities as well as the
expected future tax benefit to be derived from tax loss and tax credit
carryforwards. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount "more likely than not" to be realized in
future tax returns. Tax rate changes are reflected in income during the period
such changes are enacted.
Revenue Recognition
On certain systems development contracts, the percentage of completion
method is used to recognize the revenues. The Company measures a contract's
progress based on actual costs incurred to date compared to total estimated
contract costs. A contract is considered complete once formal acceptance from a
customer has been obtained. Because the percentage of completion method requires
estimates of costs to complete contracts, it is possible that estimated costs to
complete contracts will be revised in the near term. Revenues from software
maintenance agreements are deferred and are recognized over the maintenance
period. Software licensing revenues are recognized when delivery of the software
occurs if the Company does not have to provide additional significant service
under the contract. All other revenues are recognized when the services are
performed.
Included in accounts receivable are unbilled accounts receivable, which
represent revenue recognized in excess of amounts billed. From time to time,
depending upon billing terms, cash may be received in advance of the performance
of services or providing systems. When this occurs, these amounts are recorded
as unearned revenue.
F-29
<PAGE> 123
RETEK LOGISTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Cash Equivalents
The Company considers its investments with an original maturity of three
months or less to be cash equivalents. The Company invests excess funds in
reverse repurchase agreements for U.S. government securities. At December 31,
1996 and 1997, respectively, the Company had purchased $537 and $455 of U.S.
government securities under agreements to resell. Generally, the maturity date
of the Company's reverse repurchase agreements is the next day of business. Due
to the short-term nature of the agreements, the Company does not take possession
of the securities, which are instead held at the Company's principal bank from
which it purchases the securities. The carrying value of the agreements
approximates fair market value because of the short maturity of the investments
and the Company believes that it is not exposed to any significant risk on its
investments in reverse repurchase agreements.
Software Development Costs
Costs incurred internally in creating computer software products are
charged to expense until technological feasibility of the software has been
established. Thereafter, all software production costs are capitalized.
Capitalization of computer software costs is discontinued when the product is
available for sale to customers. The costs capitalized include the direct labor
costs of those involved with the software development effort, their supervision
and indirect costs of overhead relating to those employees, the facilities they
occupy and equipment they utilize.
The ultimate realization of these costs requires considerable judgment from
management related to the estimated useful life and anticipated future sales.
Computer software costs are amortized by the straight-line method over the
estimated useful life of the products developed, which is five years.
Amortization expense related to software development costs was $234 and $265 for
the years ended December 31, 1996 and 1997, and $64 and $69 for the three months
ended March 31, 1997 (unaudited) and March 31, 1998, respectively.
Graphic Design Costs
Costs associated with the production of graphic design applications include
computer programs to assist in the sale of the Company's product. These costs
have been capitalized and are being amortized by the straight-line method over
the asset's estimated useful life of three years. Amortization of graphic design
costs was $200 and $199 for the years ended December 31, 1996 and 1997 and $50
for both the three months ended March 31, 1997 (unaudited) and March 31, 1998.
Property and Equipment
Property and equipment are recorded at cost. The Company computes
depreciation using the straight-line method over the estimated useful lives of
the assets of three to seven years. The Company amortizes leasehold improvements
over the shorter of their estimated useful lives or the remaining term of the
related lease. Repair and maintenance costs are charged to expense as incurred.
In 1996, rental property with a net book value of $115 was distributed to the
principal stockholders in a non-cash distribution. Depreciation expense was $75
and $169 for the years ended December 31, 1996 and 1997, respectively, and $41
and $35 for the three months ended March 31, 1997 (unaudited) and March 31,
1998, respectively.
F-30
<PAGE> 124
RETEK LOGISTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Long-Lived Assets
The Company investigates potential impairments of long-lived assets,
certain identifiable intangibles and associated goodwill when events or changes
in circumstances have made recovery of an asset's carrying value unlikely. An
impairment loss would be recognized if the sum of the expected future net cash
flows were less than the carrying amount of the asset. No such impairments of
long-lived assets existed through March 31, 1998.
Diversification of Credit Risk
The Company had approximately 45% and 42% of its sales for the years ended
December 31, 1996 and 1997, respectively, and 49% and 29% for the three months
ended March 31, 1997 (unaudited) and March 31, 1998, respectively, to
international customers in South America, Africa, and Asia. The same five
customers comprised 81% of revenues for the years ended December 31, 1996 and
1997 and 87% and 91% of the revenues for the three months ended March 31, 1997
(unaudited) and March 31, 1998.
Disclosures about Fair Value of Financial Instruments
The carrying amounts of cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate fair value because of the short-term
maturities of these financial instruments.
Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("FAS
130"). FAS 130 requires the Company to report in the financial statements, in
addition to net income, comprehensive income and its components including
foreign currency items and unrealized gains and losses on certain investments in
debt and equity securities. Comprehensive income is defined as "the change in
equity (net assets) of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources." It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133") which is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. This statement establishes a new
model for accounting for derivatives and hedging activities. Under FAS 133, all
derivatives must be recognized as assets and liabilities and measured at fair
value. In July 1999, the FASB issued Statement of Accounting Standard No. 137
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133" ("FAS 137") which defers the effective
date to all fiscal quarters of fiscal years beginning after June 15, 2000. The
adoption of FAS 133 is not expected to have a significant impact on the
Company's financial position or results of operations.
In January 1999, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-9 ("SOP 98-9"), "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." This SOP
retains the limitations of SOP 97-2 on what constitutes vendor-specific
objective evidence of fair value. SOP 98-9 will be effective for transactions
entered into in fiscal years
F-31
<PAGE> 125
RETEK LOGISTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
beginning after March 15, 1999. The adoption of SOP 98-9 is not expected to have
a significant impact on the Company's financial position or results of
operations.
Interim Results (unaudited)
The accompanying statement of operations and the related statements of cash
flows for the three months ended March 31, 1997 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting of only normal
recurring adjustments, necessary for the fair statement of results of the
interim periods. The data disclosed in these notes to financial statements for
this period is also unaudited.
NOTE 2 -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1996 1997 1998
------ ------ ---------
<S> <C> <C> <C>
Accounts receivable, net
Billed.................................................... $ 577 $1,090 $ 743
Unbilled.................................................. 1 4 296
------ ------ ------
578 1,094 1,039
Less allowance for doubtful accounts........................ (18) (33) (42)
------ ------ ------
$ 560 $1,061 $ 997
====== ====== ======
Property and equipment, net
Equipment................................................. $ 264 $ 308 $ 307
Furniture and fixtures.................................... 29 28 28
Leasehold improvements.................................... 105 77 77
Purchased software........................................ 121 122 122
------ ------ ------
519 535 534
Less accumulated depreciation and amortization.............. (139) (288) (323)
------ ------ ------
$ 380 $ 247 $ 211
====== ====== ======
Software development costs, net
Software development costs................................ $1,445 $1,680 $1,800
Less accumulated amortization............................. (234) (499) (568)
------ ------ ------
$1,211 $1,181 $1,232
====== ====== ======
Graphic design costs, net
Software development costs................................ $ 598 $ 598 $ 598
Less accumulated amortization............................. (216) (415) (465)
------ ------ ------
$ 382 $ 183 $ 133
====== ====== ======
</TABLE>
NOTE 3 -- RELATED PARTY TRANSACTIONS
During 1996 and 1997, one of the principal stockholders of the Company had
a majority stock ownership in Professional Contract Systems Technical Services,
Inc. ("Technical Services"), a provider of contract engineering services. Also
during 1996 and 1997, another principal stockholder of the Company had a
majority stock ownership in PCS Computers, Inc. ("Computers"), a company engaged
in the design
F-32
<PAGE> 126
RETEK LOGISTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
and sale of specialized computer systems and electrical components for
industrial computer applications. In October 1997, one of the principal
stockholders sold his interest in the Company to the other principal stockholder
and, subsequently, in November 1997, terminated his employment with the Company.
Operating expenses include the following amounts from related parties:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDING FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------- ---------------------
1996 1997 1997 1998
---- ------ ------------ -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Technical services.................................... $146 $ 483 $43 $ 83
Computers............................................. 679 541 10 315
---- ------ --- ----
Total............................................... $825 $1,024 $53 $398
==== ====== === ====
</TABLE>
The Company leases office space from a company owned by one the Company's
previous principal stockholders under an agreement expiring December 31, 2002.
Rent expense related to this agreement for the years ended December 31, 1996 and
1997 was $259 and $252, respectively, and for the three months ended March 31,
1997 (unaudited) and March 31, 1998 was $66 and $51, respectively. At March 31,
1998, the Company was obligated under non-cancelable operating leases for its
facilities as follows:
<TABLE>
<S> <C>
1998...................................................... $ 155
1999...................................................... 212
2000...................................................... 218
2001...................................................... 225
2002...................................................... 231
------
$1,041
======
</TABLE>
The Company purchased equipment, furniture and fixtures in 1996 for
consideration equal to an 8.25% note payable to Technical Services in the amount
of $196. Monthly principal and interest payments were paid through November
1997. The note was repaid during 1997. The equipment, furniture and fixtures had
previously been leased from Technical Services. Rent expense in 1996 includes
$109 related to the lease.
NOTE 4 -- LINE OF CREDIT
In 1996, the Company negotiated a line of credit agreement with a bank that
was collateralized by substantially all corporate assets and was payable on
demand. The line of credit allowed borrowings of up to $500 with an interest
rate equal to the bank's prime rate. No outstanding borrowings existed at
December 31, 1996, 1997 or at March 31, 1998.
F-33
<PAGE> 127
RETEK LOGISTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5 -- INCOME TAXES
Prior to June 1, 1996 the Company was taxed as an S Corporation. Income tax
expense for 1996 includes a net deferred tax liability of $512 recorded in
connection with the termination of the Company's S Corporation status. Income
tax expense (benefit) for the years-ended December 31, 1996 and 1997 and the
three months ended March 31, 1997 (unaudited) and March 31, 1998 is summarized
as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------ -------------------
1996 1997 1997 1998
---- ---- ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Current.................................................. $ -- $30 $ -- $45
Deferred................................................. 448 31 (24) 22
---- --- ---- ---
$448 $61 $(24) $67
==== === ==== ===
</TABLE>
The components of the Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------- --------------------
1996 1997 1997 1998
----- ----- ----------- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................. $ 64 $ -- $ 40 $ --
Accounts receivable............................... 7 12 12 17
State taxes
Other............................................. 2 1 6 2
----- ----- ----- -----
Gross deferred tax assets...................... 73 13 58 19
Deferred tax liabilities:
Capitalized software.............................. (514) (478) (467) (501)
Property and equipment............................ (7) (15) (15) (13)
Other............................................. (6)
----- ----- ----- -----
Gross deferred tax liability................... (521) (493) (482) (520)
----- ----- ----- -----
Net deferred tax liability................... $(448) $(480) $(424) $(501)
===== ===== ===== =====
</TABLE>
F-34
<PAGE> 128
RETEK LOGISTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
A reconciliation of the income tax provision (benefit) to the amount
computed by applying the statutory federal income tax rate to income before
income tax provision (benefit) is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------ -------------------
1996 1997 1997 1998
---- ---- ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Amounts computed at statutory federal rate.................. $(97) $ 59 $(22) $ 9
State income taxes, net of federal benefit................ 47 13 (2) 27
Tax credit carryforwards generated........................ (7)
Non-deductible purchased technology and other
non-deductible acquisition costs....................... 37
S-corp termination deferred balances...................... 501
Other, net................................................ (3) (11) 1
---- ---- ---- ---
Income tax provision (benefit).............................. $448 $ 61 $(24) $67
==== ==== ==== ===
</TABLE>
NOTE 6 -- PROFIT SHARING PLANS
The Company has a Sec. 401(k) profit sharing plan covering all eligible
employees who desire to participate in the plan. Company matching contributions
are based on a percentage of the employees' contributions. Company matching
contributions were $14 and $12 during the years ended December 31, 1996, 1997,
and $0 for both the three months ended March 31, 1997 (unaudited) and March 31,
1998. Additionally, the Company may, at its option, contribute a portion of
annual profits to the plan. The Company did not make such a contribution during
the years ended December 31, 1996, 1997 or the three months ended March 31,
1998.
NOTE 7 -- SUBSEQUENT EVENTS
On March 24, 1998, the Company's stockholders approved an agreement between
the Company and HNC pursuant to which the Company's stockholders would exchange
all issued and outstanding capital stock of the Company for HNC stock.
On March 31, 1998, the Company's stockholders received 143 shares of HNC
common stock in exchange for all of the issued and outstanding shares of the
Company.
F-35
<PAGE> 129
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
(UNAUDITED)
On March 31, 1998, HNC Software Inc. ("HNC") completed its acquisition of
Retek Inc. (formerly Retek Logistics, Inc.) in a transaction accounted for under
the purchase method of accounting by HNC. Under the purchase method, the
aggregate purchase price is required to be allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed on the basis of
their fair values on the acquisition date. The pro forma unaudited combined
statement of income is based on the audited combined statement of income of
Retek Inc. and Retek Information Systems, Inc. for the year ended December 31,
1998, which includes the accounts of Retek Inc. for the period from March 31,
1998 through December 31, 1998, and the audited financial statements for Retek
Inc. for the period from January 1, 1998 through March 31, 1998. Adjustments
have been made to such information to give effect to the acquisition of Retek
Inc. as if the acquisition had occurred on January 1, 1998.
The information has been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission and is provided for
comparative purposes only. The pro forma information does not purport to be
indicative of the results that actually would have occurred had the acquisition
been effected at the beginning of the period presented.
F-36
<PAGE> 130
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
----------------- THREE MONTHS YEAR ENDED
COMBINED ENDED MARCH 31, DECEMBER 31,
RETEK INC. AND 1998 1998
RETEK INFORMATION --------------------- PRO FORMA ------------
SYSTEMS, INC. RETEK LOGISTICS, INC. ADJUSTMENTS PRO FORMA
----------------- --------------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue..................................... $55,033 $1,231 $ -- $56,264
Cost of revenue............................. 13,852 431 -- 14,283
------- ------ ----- -------
Gross profit................................ 41,181 800 -- 41,981
Operating expenses:
Research and development.................. 12,918 -- -- 12,918
Selling, general and administrative....... 17,996 670 -- 18,666
Acquisition related amortization of
intangible.............................. 429 -- 603(A) 1,032
Acquired in-process research and
development............................. 1,750 -- -- 1,750
------- ------ ----- -------
Total operating expenses................ 33,093 670 603 34,366
------- ------ ----- -------
Operating income............................ 8,088 130 (603) 7,615
Other income (expense), net................. 11 (104) -- (93)
------- ------ ----- -------
Income before income tax provision.......... 8,099 26 (603) 7,522
Income tax provision........................ 4,221 67 -- 4,288
------- ------ ----- -------
Net income (loss)........................... $ 3,878 $ (41) $(603) $ 3,234
======= ====== ===== =======
Pro forma unaudited basic and diluted net
income per common share (Note 3).......... $ 0.10 $ 0.08
======= =======
Pro forma unaudited weighted average
shares -- basic and diluted (Note 3)...... 40,000 40,000
======= =======
</TABLE>
(A) See Note 4 to Pro Forma Combined Statement of Income
See accompanying notes to pro forma combined statement of income.
F-37
<PAGE> 131
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF INCOME
(IN THOUSANDS)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
In March 1998 HNC acquired Retek Inc. (formerly Retek Logistics, Inc.)
which develops warehouse management software solutions.
The pro forma unaudited combined statement of income presented is not
necessarily indicative of the future combined operating results of Retek Inc.
and Retek Information Systems, Inc. (the "Company") or the combined operating
results that would have resulted had the acquisition taken place on January 1,
1998. The unaudited pro forma combined statement of income for the year ended
December 31, 1998 reflects the effects of the acquisition, assuming the
acquisition occurred on January 1, 1998.
NOTE 2--PURCHASE PRICE ALLOCATION
The unaudited pro forma combined financial statements reflect a total
purchase price of $6,564 consisting of the initial purchase price of $5,088 and
the additional consideration of $1,476 paid by HNC related to the achievement of
financial objectives by Retek Inc. in 1998. HNC has a contingent obligation to
issue additional shares of HNC common stock upon the achievement of certain
financial objectives during 1999. This additional consideration will not be
reflected in the Company's financial position or results of operations in the
future if HNC's share of ownership of the Company at the time of issuance is
less than 95%. If HNC continues to own 100% of the Company, such issuance will
be reflected as an increase in intangible assets.
The Company's allocation of Retek Inc.'s aggregate purchase price to the
tangible and identifiable intangible assets acquired in connection with this
acquisition was based on fair values as determined by independent appraisers.
The allocation is summarized below:
<TABLE>
<S> <C>
Goodwill.................................................... $2,360
Acquired in-process research and development................ 1,750
Purchased software costs.................................... 1,100
Customer base............................................... 300
Assembled work force........................................ 200
Trademarks.................................................. 70
Net assets.................................................. 784
------
Total purchase price................................... $6,564
======
</TABLE>
The goodwill, customer base and trademarks are being amortized on a
straight-line basis over the estimated period of benefit of five years. The
purchased software costs is being amortized on a straight-line basis over the
estimated period of benefit of thirty-six to forty-two months. The assembled
work force is being amortized on a straight-line basis over the estimated period
of benefit of two years.
NOTE 3--PRO FORMA UNAUDITED COMBINED NET INCOME PER SHARE
Pro forma unaudited net income per share is calculated based upon the
outstanding shares of Retek Inc. of 2,238 at December 31, 1998, as if Retek
Information Systems, Inc. became a wholly-owned subsidiary of Retek Logistics,
Inc. on January 1, 1998.
F-38
<PAGE> 132
RETEK INC. AND RETEK INFORMATION SYSTEMS, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
NOTE 4--PURCHASE ADJUSTMENTS:
The following adjustment was applied to the combined financial statements
of Retek Inc. and Retek Information Systems, Inc. and the financial statements
of Retek Logistics, Inc. to arrive at the pro forma combined statement of
operations:
To record annual amortization of goodwill and other identifiable intangible
assets that is being amortized over the estimated period of benefit of three to
five years. This adjustment is calculated as follows:
<TABLE>
<CAPTION>
HISTORICAL AMORTIZATION ANNUAL
COST PERIOD AMORTIZATION
---------- ------------ ------------
<S> <C> <C> <C>
Purchased software costs................................ $1,100 3 years $ 367
Assembled workforce..................................... 200 3 years 67
Customer base........................................... 300 5 years 60
Trademark............................................... 70 5 years 14
Goodwill................................................ 2,361 4 - 5 years 524
------ ------
$4,031 1,032
======
Amortization recognized for the year ended December 31, 429
1998..................................................
------
Adjustment to reflect acquisition as of January 1, $ 603
1998..................................................
======
</TABLE>
F-39
<PAGE> 133
[Inside Back Cover]
[The following text center justified appears at the top of the page:]
Retek knows retail
[Five images, each representative of a different segment of the retail market,
are arranged in a vertical column down the middle of the page. Centered below
each image is a one or two word description of the retail market segment
represented by that image. From top to bottom, the following words appear below
these images:]
fashion, grocery, specialty, mass merchandise, department store
[Outside Back Cover]
[The Company's logo appears at the center of the page with the word "Retek"
directly underneath.]
<PAGE> 134
RETEKBW.eps
<PAGE> 135
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale and distribution of the common stock being registered. All amounts
are estimated, except the Securities and Exchange Commission Registration Fee,
the NASD Filing Fee and the Nasdaq National Market Filing Fee:
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ----------
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 25,896
NASD Filing Fee............................................. 9,815
Nasdaq National Market Filing Fee........................... 30,000
Blue Sky Fees and Expenses.................................. 0
Accounting Fees and Expenses................................ 650,000
Legal Fees and Expenses..................................... 750,000
Transfer Agent and Registrar Fees........................... 20,000
Printing and Engraving...................................... 225,000
Miscellaneous............................................... 39,289
----------
Total..................................................... $1,750,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person is or was an officer or director of such corporation or is or was
serving at the request of such corporation as a director, officer, employer or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such officer or director acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, in the case of criminal proceedings, had
no reasonable cause to believe his or her conduct was illegal. A Delaware
corporation may indemnify officers and directors against expenses (including
attorneys' fees) in connection with the defense or settlement of an action by or
in the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against expenses
which such officer or director actually and reasonably incurred. The Certificate
of Incorporation of the Registrant provides for indemnification of the officers
and directors of the Registrant to the full extent permitted by applicable law.
In accordance with Delaware law, the Certificate of Incorporation of the
Registrant contains, and the Amended and Restated Certificate of Incorporation
of the Registrant will contain, a provision to limit the personal liability of
directors of the Registrant for violations of their fiduciary duty. This
provision eliminates each director's liability to the Registrant or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, providing for liability
of directors for unlawful payment of dividends or unlawful stock purchases or
redemptions or (iv) for any transaction from which a director derived an
II-1
<PAGE> 136
improper personal benefit. The effect of this provision is to eliminate the
personal liability of directors for monetary damages for actions involving a
breach of their fiduciary duty of care, including any such actions involving
gross negligence.
Pursuant to the underwriting agreement between the Registrant and the
underwriters filed as an exhibit to this Registration Statement, the
underwriters, a party thereto, have agreed to indemnify each officer and
director of the Registrant and each person, if any, who controls the Registrant
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), against certain liabilities, including liabilities under the Securities
Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the incorporation in Delaware of Retek Inc., the
Registrant issued shares of its common stock to HNC Software Inc. The
Registrant believes that this issuance was exempt from registration under
Section 4(2) of the Securities Act as a transaction not involving any public
offering.
In addition, in connection with the exercise of the option to purchase all
of the issued and outstanding capital stock of WebTrak Limited, a company
organized under the laws of England, the Registrant issued notes, payable in
cash, and a note, payable in cash or, at the election of the holder thereof, in
shares of the Registrant's common stock. The Registrant believes that this
issuance was exempt from registration under Regulation S of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Merger and Reorganization between
Retek Logistics, Inc. and Registrant.
2.2 Form of Separation Agreement.
2.3 Form of Technology License Agreement.
2.4* Form of Tax Sharing Agreement.
2.5* Form of Services Agreement.
2.6* Form of Corporate Rights Agreement.
2.7 Form of Stock Contribution Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.2* Certificate of Amendment to the Certificate of Incorporation
of the Registrant.
3.3* Bylaws of the Registrant.
3.4 Form of Amended and Restated Certificate of Incorporation of
the Registrant as in effect immediately prior to the closing
of this offering.
3.5 Form of Amended and Restated Bylaws of the Registrant as in
effect immediately prior to the closing of this offering.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Shearman & Sterling.
10.1+ Industry Solutions Initiative Master Agreement between
Oracle Corporation and Retek Information Systems, Inc.
10.2* Employment Agreement of John Buchanan.
</TABLE>
II-2
<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.3* Assignment of Option Agreement relating to Webtrak Limited
between HNC Software Inc. and Retek Information Systems,
Inc.
10.4* Option Agreement between HNC Software Inc., Webtrak Limited
and the shareholders of Webtrak Limited.
10.5* Retek 1999 Equity Incentive Plan.
10.6* Retek 1999 Employee Stock Purchase Plan.
10.7* Retek 1999 Director Stock Option Plan.
10.8* Employment Agreement of Jeremy Thomas
21.1* Schedule of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3* Consent of Shearman & Sterling (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
27.2* Financial Data Schedule.
27.3* Financial Data Schedule.
27.4* Financial Data Schedule.
</TABLE>
- -------------------------
* Filed previously.
+ The Registrant applied for confidential treatment of portions of this
Exhibit. Accordingly, portions thereof have been omitted and filed
separately.
(B) FINANCIAL STATEMENT SCHEDULES
None.
ITEM 17. UNDERTAKINGS
(a) The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item
14 or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE> 138
(c) The undersigned Registrant hereby undertakes that:
(1) for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time
it was declared effective; and
(2) for purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein and this offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 6 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on November 17, 1999.
RETEK INC.
*
By:
--------------------------------------
Name: John Buchanan
Title: Chairman, Chief Executive
Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman, Chief Executive Officer November 17, 1999
- --------------------------------------------- and Director (Principal Executive
John Buchanan Officer)
/s/ GREGORY A. EFFERTZ Vice President, Finance and November 17, 1999
- --------------------------------------------- Administration, Chief Financial
Gregory A. Effertz Officer, Treasurer and Secretary
(Principal Financial and Accounting
Officer)
* Director November 17, 1999
- ---------------------------------------------
N. Ross Buckenham
* Director November 17, 1999
- ---------------------------------------------
Ward Carey
* Director November 17, 1999
- ---------------------------------------------
Charles H. Gaylord
* Director November 17, 1999
- ---------------------------------------------
Alex Way Hart
* Director November 17, 1999
- ---------------------------------------------
Glen A. Terbeek
* Director November 17, 1999
- ---------------------------------------------
Stephen E. Watson
*By /s/ GREGORY A. EFFERTZ
---------------------------------------
Gregory A. Effertz
Attorney-in-fact
</TABLE>
<PAGE> 140
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Merger and Reorganization between
Retek Logistics, Inc. and Registrant.
2.2 Form of Separation Agreement.
2.3 Form of Technology License Agreement.
2.4* Form of Tax Sharing Agreement.
2.5* Form of Services Agreement.
2.6* Form of Corporate Rights Agreement.
2.7 Form of Stock Contribution Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.2* Certificate of Amendment to the Certificate of Incorporation
of the Registrant.
3.3* Bylaws of the Registrant.
3.4 Form of Amended and Restated Certificate of Incorporation of
the Registrant as in effect immediately prior to the closing
of this offering.
3.5 Form of Amended and Restated Bylaws of the Registrant as in
effect immediately prior to the closing of this offering.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Shearman & Sterling.
10.1+ Industry Solutions Initiative Master Agreement between
Oracle Corporation and Retek Information Systems, Inc.
10.2* Employment Agreement of John Buchanan.
10.3* Assignment of Option Agreement relating to Webtrak Limited
between HNC Software Inc. and Retek Information Systems,
Inc.
10.4* Option Agreement between HNC Software Inc., Webtrak Limited
and the shareholders of Webtrak Limited.
10.5* Retek 1999 Equity Incentive Plan.
10.6* Retek 1999 Employee Stock Purchase Plan.
10.7* Retek 1999 Director Stock Option Plan.
10.8* Employment Agreement of Jeremy Thomas.
21.1* Schedule of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3* Consent of Shearman & Sterling (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
27.2* Financial Data Schedule.
27.3* Financial Data Schedule.
27.4* Financial Data Schedule.
</TABLE>
- -------------------------
* Filed previously.
+ The Registrant applied for confidential treatment of portions of this
Exhibit. Accordingly, portions thereof have been omitted and filed
separately.
<PAGE> 1
EXHIBIT 2.2
FORM OF SEPARATION AGREEMENT
This SEPARATION AGREEMENT (this "Agreement"), is made and entered into
effective as of ____________, 1999 (the "Effective Date") by and among HNC
Software Inc., a Delaware corporation ("HNC"), Retek Inc., a Delaware
corporation ("Retek") and Retek Information Systems, Inc., a Delaware
corporation ("RIS").
RECITALS
A. As of the Effective Date, Retek is a wholly-owned subsidiary of HNC,
and RIS is a wholly-owned subsidiary of HNC.
B. HNC's Board of Directors has determined that it is in the best
interests of HNC and its stockholders to separate the businesses of Retek and
RIS from HNC's other operations. In furtherance of that objective, HNC has also
determined that it is appropriate and desirable for HNC to contribute and
transfer to Retek all of the capital stock of RIS which HNC owns (so that RIS
will become a wholly-owned subsidiary of Retek) together with certain other
assets as provided herein and to cause Retek to assume certain liabilities, in
accordance with this Agreement and the Ancillary Agreements (as defined herein)
(such contribution and transfer of assets by HNC and such assumption of
liabilities by Retek and RIS in accordance with this Agreement are collectively
hereinafter referred to as the "Separation").
C. The Board of Directors of HNC and Retek have determined that it is
appropriate and desirable, on the terms and conditions contemplated by this
Agreement, that Retek issue and sell shares of its Common Stock (as defined
herein) in an initial public offering registered under the Securities Act (the
"Initial Public Offering"), provided that (i) immediately prior to the first
closing of the sale of shares of Retek's Common Stock in such Initial Public
Offering, HNC owns forty million (40,000,000) shares of the outstanding common
stock of Retek, all of which shares have been duly and validly issued, are
outstanding and are fully paid and non-assessable. and (ii) the total number of
shares of Retek's capital stock issued and sold in the Initial Public Offering
does not exceed Five Million Seven Hundred Fifty Thousand (5,750,000) shares of
Retek's Common Stock following the final closing of the Initial Public Offering.
D. HNC's current intention is that, after the closing of the Initial
Public Offering, HNC may in its sole discretion elect to distribute pro rata to
HNC's stockholders, as a dividend, the remaining shares of Common Stock of Retek
which it holds after the closing of the Initial Public Offering (the
"Distribution").
E. It is appropriate and desirable to set forth in this Agreement the
agreements of the parties regarding the Separation and the transactions required
to effect the Separation and the Initial Public Offering, and the relationship
of HNC, Retek and RIS following the Separation.
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual agreements, provisions and covenants contained in this Agreement, the
parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS. As used herein, the following terms have the
following meanings:
"Action" means any claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, governmental, regulatory or administrative
agency or commission, any other tribunal or other Governmental Authority, or any
arbitrator or arbitration panel.
"Affiliate" of any specified Person means any other Person that,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with such specified Person. For purposes of this
definition, the term "control" (including, with correlative meanings, the terms,
"controls" "controlled by" or "under common control with") means the possession,
directly or indirectly, of the power to vote a majority of the securities having
voting power for the election of directors (or other Persons acting in similar
capacities) of such Person or otherwise to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"After Tax Basis" means a basis such that the Original Payment shall be
supplemented by a further payment to such Person so that the sum of the two
payments shall equal the Original Payment, after taking into account all Taxes
that would result from the receipt or accrual of such payments, if legally
required, with all payments hereunder being calculated on the assumption that
the payee is subject to Tax at the highest marginal rates of Tax applicable to
such class of taxpayer.
"Ancillary Agreements" means, collectively, the Corporate Rights
Agreement, the License Agreement, the Services Agreement, the Stock Contribution
Agreement and the Tax Sharing Agreement.
"Closing" has the meaning assigned to such term in Section 2.4.
"Closing Date" has the meaning assigned to such term in Section 2.4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the U.S. Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.01 per share, of
Retek.
"Consents" means any consents, waivers or approvals from, or
notification requirements to, any third parties.
2
<PAGE> 3
"Covered Claims" means any claim that is of a type covered by insurance
or self insurance of HNC in effect on the Closing Date and is listed and
described as a "Covered Claim" on Schedule 3(k).
"Corporate Rights Agreement" means the Corporate Rights Agreement to be
entered into by and among HNC, Retek and RIS at the Closing in substantially the
form of Exhibit 1.
"Distribution" has the meaning assigned to such term in Recital D of
this Agreement.
"Effective Initial Public Offering Date" means the date on which the
Registration Statement is declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" has the meaning assigned to such term in Section
2.1(b).
"Excluded Liabilities" has the meaning assigned to such term in Section
2.2(b).
"Governmental Authority" means any federal, state, local, foreign or
international court, government, department, commission, board, bureau, agency,
official or other regulatory, administrative or governmental authority.
"HNC Group" means HNC and each Person (other than Retek and RIS or any
subsidiary of Retek or RIS) that is an Affiliate of HNC immediately after the
Closing Date.
"Liabilities" means any and all losses, claims, charges, debts, demands,
Actions, causes of action, suits, damages, obligations, payments, costs and
expenses, accounts, bonds, indemnities and similar obligations, covenants,
contracts, agreements, promises, guarantees and other liabilities, including all
contractual obligations, whether absolute or contingent, matured or not matured,
liquidated or unliquidated, accrued or not accrued, known or unknown, whenever
arising, in each case, whether or not recorded or reflected or required to be
recorded or reflected in the books and records or financial statements of any
Person, including, without limitation, those arising under (i) any law, rule or
regulation, (ii) any Action, threatened or contemplated Action (including the
costs and expenses of demands, assessments, judgments, arbitration awards,
settlements and compromises relating thereto and attorneys' fees and any and all
costs and expenses whatsoever (including without limitation allocated costs of
in-house counsel and other personnel), reasonably incurred in investigating,
preparing or defending against any such Actions or threatened or contemplated
Actions), (iii) any order or consent decree of any Governmental Authority or any
award of any arbitrator or mediator of any kind and (iv) any contract,
commitment or undertaking, including those arising under this Agreement or any
Ancillary Agreement.
"License Agreement" means the Technology License Agreement to be entered
into between HNC and RIS at the Closing in substantially the form of Exhibit 2.
3
<PAGE> 4
"Lien" means any mortgage, security interest, pledge, encumbrance or
charge upon property of a Person to secure or obtain payment of a debt or
performance of an obligation, whether arising by contract, consent or by
operation of law.
"Original Payment" means the payment received or deemed to have been
received by a Person before any adjustments made to take into account that such
payment is Taxable to the payee.
"Person" means an individual, a general or limited partnership, a
corporation, a trust, a joint venture, an unincorporated organization, a limited
liability company, any other entity and any Governmental Authority.
"Policy" has the meaning assigned to such term in Section 3.1(k).
"Prospectus" means each preliminary, final or supplemental prospectus
forming a part of the Registration Statement.
"Registration Statement" means the registration statement on Form S-1
(or other appropriate form promulgated by the Commission) filed by Retek with
the Commission to effect the registration for issuance by Retek in the Initial
Public Offering of shares of its Common Stock pursuant to the Securities Act, as
such registration statement may be amended or supplemented from time to time.
"Retek Assets" has the meaning assigned to such term in Section 2.1(a).
"Retek Business" means the business and operations of Retek and RIS,
which consist of developing, marketing, selling and supporting enterprise
software products that provide business solutions to retailers and their
suppliers.
"Retek Bylaws" means the amended and restated bylaws of Retek which will
be in effect immediately prior to the closing of the Initial Public Offering in
the form thereof filed as an exhibit to the Registration Statement.
"Retek Certificate" means the amended and restated certificate of
incorporation of Retek which will be in effect immediately prior to the closing
of the Initial Public Offering in the form thereof filed as an exhibit to the
Registration Statement.
"Retek Contracts" means the following contracts and agreements, to which
HNC or any of its Affiliates is a party or by which HNC or any of its Affiliates
or and of their respective assets is bound, except for any such contract or
agreement that is contemplated to be retained by HNC or any of its Affiliates
(other than Retek or RIS) pursuant to any provision of this Agreement or any
Ancillary Agreement:
(a) the contracts or agreements listed or described on Schedule
1.1(a) (as such Schedule may be supplemented by mutual written agreement
signed by HNC and Retek after the Effective Date and prior to the
Closing Date);
4
<PAGE> 5
(b) any contracts or agreements entered into by HNC in the name
of, or expressly on behalf of, Retek or RIS; and
(c) any guarantee, indemnity, representation, warranty or other
Liability of Retek or HNC in respect of any other Retek Contract, any
Retek Liability or the Retek Business.
"Retek Group" means Retek, RIS and any subsidiary of either Retek or RIS
immediately after the Closing Date.
"Retek Intercompany Payables" means all accounts payable and other
intercompany amounts payable by Retek, RIS or any other member of the Retek
Group to HNC or to any other member of the HNC Group as set forth in Schedule
2.6 or reflected in the books and records of the parties or otherwise documented
in writing in accordance with the parties' past practices.
"Retek Intercompany Receivables" means all accounts receivable and other
intercompany amounts payable by HNC or by any other member of the HNC Group to
Retek, RIS or any other member of the Retek Group as set forth in Schedule 2.6
or reflected in the books and records of the parties or otherwise documented in
writing in accordance with the parties' past practices.
"Retek Liabilities" has the meaning assigned to such term in Section
2.2.
"RIS Bylaws" means the bylaws of RIS, as amended.
"RIS Certificate" means the restated certificate of incorporation of
RIS.
"RIS Common Stock" means the shares of common stock of RIS, par value
$0.001 per share.
"Securities Act" means the Securities Act of 1933, as amended.
"Separation" has the meaning assigned to such term in Recital B of this
Agreement.
"Separation Date" means the date determined by the Board of Directors of
HNC as the date on which the Separation shall be effected, which is contemplated
to occur on the date of the closing of the Initial Public Offering.
"Services Agreement" means the Services Agreement to be entered into
between HNC, Retek and RIS at the Closing in substantially the form of Exhibit
3.
"Stock Contribution Agreement" means the Stock Contribution Agreement to
be entered into by HNC, Retek and RIS at the Closing in substantially the form
of Exhibit 4.
"Tax," "Taxes" or "Taxable" has the meaning given to such term in the
Tax Sharing Agreement.
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"Tax Sharing Agreement" means the Tax Sharing Agreement to be entered
into among HNC and Retek at the Closing providing for certain tax related
matters, in substantially the form of Exhibit 5.
"Underwriting Agreement" means the agreement executed between Retek and
the managing Underwriter with regard to the Initial Public Offering.
"Underwriter" means a Person who agrees to act as an underwriter in
connection with the Initial Public Offering.
Unless otherwise specified, any reference herein to any "subsidiary" or
"subsidiaries" of HNC shall not include either Retek or RIS.
ARTICLE II
TRANSFER OF ASSETS AND
ASSUMPTION OF LIABILITIES
2.1 TRANSFER OF ASSETS.
(a) Assignment of Retek Assets. Effective upon the Closing, HNC will
assign, transfer, convey and deliver to Retek as of the Closing Date, and HNC
agrees to cause each of its subsidiaries (other than Retek and RIS) to assign,
transfer, convey and deliver to Retek as of the Closing Date, and Retek will
accept from HNC and such subsidiaries as of the Closing Date, all of HNC's and
such subsidiaries' respective right, title and interest in, to or under the
following assets and properties described in the following subparagraphs of this
Section 2.1(a) (collectively, the "Retek Assets"):
(i) all shares of RIS Common Stock owned directly or
beneficially by HNC as of the Closing Date;
(ii) all of the Retek Contracts;
(iii) tangible copies of any sales, marketing and promotional
literature, and other sales-related materials owned, used, associated
with or employed by HNC relating primarily to the Retek Business.
Notwithstanding the foregoing, Retek Assets shall not in any event
include any of the Excluded Assets referred to in Section 2.1(b) below.
(b) Excluded Assets. For the purposes of this Agreement, "Excluded
Assets" shall mean all assets, properties and rights owned or held
by HNC or any member of the HNC Group that are not expressly
described in any of the subparagraphs of Section 2.1(a).
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2.2 ASSUMPTION OF RETEK LIABILITIES.
(a) Assumption. Effective upon the Closing, except as may be otherwise
expressly set forth in one or more of the Ancillary Agreements, from and after
the Closing Date, Retek and RIS hereby jointly and severally assume and agree to
faithfully and timely pay, perform, fulfill and satisfy all Retek Liabilities,
in accordance with their respective terms. As used herein, the term "Retek
Liabilities" means, collectively, all Liabilities (other than Taxes based on, or
measured by reference to, net income), including any employee-related
Liabilities, primarily relating to, arising out of or resulting from: (i) the
conduct or operation of the Retek Business at any time prior to, on or after the
Closing Date (including any Liability relating to, arising out of or resulting
from any act or failure to act by any director, officer, employee, agent or
representative of Retek or RIS (whether or not such act or failure to act is or
was within such Person's authority)); (ii) the conduct or operation of any
business conducted by Retek or RIS at any time after the Closing Date (including
any Liability relating to, arising out of or resulting from any act or failure
to act by any director, officer, employee, agent or representative or Retek or
RIS (whether or not such act or failure to act is or was within such Person's
authority)); and/or (iii) any Retek Assets. Notwithstanding the foregoing, Retek
Liabilities shall not in any event include any of the Excluded Liabilities (as
defined in Section 2.2(b) below).
(b) Excluded Liabilities. For the purposes of this Agreement, the term
"Excluded Liabilities" shall mean (i) any and all Liabilities that are expressly
contemplated by this Agreement or by any Ancillary Agreement to be Liabilities
that will be retained by or assumed by HNC or any member of the HNC Group after
the Closing and (ii) all agreements and obligations of any member of the HNC
Group under this Agreement or under any of the Ancillary Agreements.
(c) Third-Party Releases. Except as provided in any Ancillary Agreement
or with regard to any obligations of HNC under this Agreement and such Ancillary
Agreements, from and after the execution of this Agreement, HNC, Retek and RIS
will cooperate in good faith and Retek and RIS will take such reasonable steps
(at the expense of HNC) as HNC may request so that HNC may obtain from third
parties (other than Retek or RIS) the release, discharge and exoneration of
HNC's obligations or Liabilities to any such third party (whether or not such
party's Consent is required to effect the transfer of any Retek Asset or the
assumption of any Retek Liability as contemplated herein) and the discharge of
any Lien on the property of HNC or any of its subsidiaries, arising from or
related to any of the Retek Assets or Retek Liabilities or the Retek Business,
to the end that Retek and/or RIS will become the sole obligors, debtors or
responsible parties on such Liabilities (the "HNC Releases").
(d) Retek Liabilities. Retek shall be responsible for all Retek
Liabilities, regardless of when or where such Liabilities arose or arise, or
whether the facts on which they are based occurred prior to or subsequent to the
Effective Date, regardless of where or against whom such Liabilities are
asserted or determined (including any Retek Liabilities arising out of claims
made by HNC's, Retek's or RIS's respective directors, officers, employees,
agents or Affiliates) or whether asserted or determined prior to the Effective
Date, and regardless of whether arising from or alleged to arise from
negligence, recklessness, violation of law, fraud or misrepresentation by HNC,
Retek or RIS or any of their respective directors, officers, employees,
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agents or Affiliates. As between the Retek Group and the HNC Group, no member of
the HNC Group shall have any responsibility for any Retek Liability.
2.3 TRANSFERS NOT EFFECTED ON OR PRIOR TO THE CLOSING DATE. To the extent
any transfers of assets contemplated by Section 2.1 shall not have been fully
effected on or prior to the Closing Date, HNC and Retek shall cooperate to
effect such transfers as promptly as possible following the Closing Date.
Nothing herein shall be deemed to require the transfer of any assets or the
assignment or assumption of any Liabilities that by their terms or by operation
of law cannot be so transferred, assigned or assumed; provided, however, that
any such asset shall be deemed a Retek Asset for purposes of determining whether
any Liability is a Retek Liability; and provided, further, that HNC and Retek
and their respective Affiliates shall cooperate in seeking to obtain any
necessary Consents for the transfer of all assets and the assignment or
assumption of all Liabilities as contemplated by this Article II. In the event
that any transfer of assets or assignment or assumption of Liabilities
contemplated by this Article II has not been consummated effective as of the
Closing Date, (i) the parties retaining such assets shall thereafter hold such
assets in trust for the use and benefit of the party entitled thereto (at the
expense of the party entitled thereto); and (ii) the party retaining such
Liabilities shall thereafter hold such Liabilities for the account of the party
assuming such Liability or to whom such Liability is to be assigned pursuant
hereto, and in each such case shall take such other actions as may be reasonably
required in order to place the parties, insofar as reasonably possible, in the
same position as would have existed had such asset been transferred, or such
Liability been assigned or assumed as contemplated hereby. As and when any such
asset or Liability become transferable, assignable or assumable, as the case may
be, such transfer, assignment or assumption, as the case may be, shall be
effected forthwith. HNC and Retek agree that, as of the Closing Date, each party
hereto shall be deemed to have acquired complete and sole beneficial ownership
over all of the assets, together with all of the rights, powers and privileges
incidental thereto, that such party is entitled to acquire pursuant to the terms
of this Agreement.
2.4 CLOSING MATTERS. The closing of the Separation under this Agreement will
take place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo
Alto, California, at a.m. Pacific Time, concurrent with the consummation and
closing of the Initial Public Offering or at such other time and place as HNC,
Retek and RIS shall mutually agree upon in a writing signed by each of them. The
"Closing" and the date on which the Closing occurs is referred to herein as the
"Closing Date"), provided, however, that HNC's obligation to consummate the
Separation and to effect the Closing shall be subject to the satisfaction and
fulfillment of the conditions to HNC's obligations set forth in Section 3.3. At
the Closing, to the extent that they have not already done so, the parties will
take each of the following actions:
(a) HNC shall execute and deliver to Retek (or to RIS, in the case of
deliverables relevant to RIS) such bills of sale, stock powers, assignments of
contracts and other instruments or transfer, conveyance and assignment as and to
the extent necessary to evidence the transfer, conveyance and assignment of all
of HNC's or its subsidiaries' (other than Retek or RIS) right, title and
interest in and to Retek Assets to Retek or RIS, as the case may be;
(b) HNC shall execute and deliver each of the Ancillary Agreements to
Retek and RIS, as applicable;
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(c) Retek shall execute and deliver to HNC (and, with regard to any
liabilities assumed for RIS, to RIS) such bills of sale, assumptions of
contracts and other instruments or assumption as may be necessary to evidence
the valid and effective assumption of Retek Liabilities by Retek and RIS;
(d) Retek shall execute and deliver each of the Ancillary Agreements to
HNC and RIS, as applicable;
(e) RIS shall execute and deliver to HNC and RIS such bills of sale,
assumptions of contracts and other instruments or assumption as may be necessary
to evidence the valid and effective assumption of any Retek Liabilities by RIS;
(f) RIS shall execute and deliver each of the Ancillary Agreements to
HNC and Retek, as applicable; and
(g) Either (i) Retek and RIS on the one hand, or (ii) HNC on the other
hand, as applicable under the provisions of Section 2.6, shall pay to the other
the amount payable by it under the provisions of Section 2.6 to settle all then
outstanding intercompany accounts in accordance with Section 2.6.
2.5 NO REPRESENTATIONS OR WARRANTIES; CONSENTS.
(a) Asset Status. Each of the parties hereto understands and agrees that
no party hereto is, in this Agreement, in any Ancillary Agreement or in any
other agreement or document contemplated by this Agreement, any Ancillary
Agreement or otherwise, making any representation or warranty whatsoever to any
other party as to the value, quality or condition of any assets of such party,
and all such representations and warranties are hereby disclaimed and negated.
The parties also agree and understand that there are no warranties whatsoever,
whether express or implied, given by any party to this Agreement, as to the
condition, quality, merchantability or fitness for a particular purpose of any
of the assets, businesses or other rights transferred or retained by the
parties, as the case may be, and all such assets, businesses and other rights
shall be "as is, where is" and "with all faults" (provided that the absence of
warranties given by the parties shall not negate the assumption of Liabilities
under this Agreement and shall have no effect on any manufacturers, sellers, or
other third party warranties that are intended to be transferred with such
assets).
(b) Consents. Each party hereto understands and agrees that no party
hereto is, in this Agreement, in any Ancillary Agreement or in any other
agreement or document contemplated by this Agreement, any Ancillary Agreement or
otherwise, representing or warranting in any way that the obtaining of any
Consents, the execution and delivery of any amendatory agreements and the taking
of any filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable laws or judgments or other instruments or
agreements relating to such assets. Notwithstanding the foregoing, the parties
shall use their reasonable good faith efforts to obtain all Consents (including
without limitation such Consents as may be required by any Governmental
Authorities), and to take all such further actions as shall be deemed
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reasonably necessary to preserve for each of HNC, Retek and RIS, to the greatest
extent reasonably feasible (where the determination of feasibility shall take
into account the expense and time associated with preserving such benefits as
compared to the value of such benefits) to carry out the purposes and intent of
this Agreement. If at any time after the Closing Date any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall take all such
necessary or desirable action, provided that any financial cost shall be borne
by the party receiving the benefit of the action.
2.6 SETTLEMENT AND OFFSET OF INTERCOMPANY ACCOUNTS.
(a) Current Intercompany Accounts. The parties agree that, as of the
Effective Date: (i) the Retek Intercompany Payables consist entirely of those
payables designated as Retek Intercompany Payables in Part A of Schedule 2.6 in
the respective amounts set forth therein, and (ii) the Retek Intercompany
Receivables consist entirely of those accounts receivable designated as Retek
Intercompany Receivables in Part B of Schedule 2.6 in the respective amounts set
forth therein.
(b) Closing Update Certificates. At the Closing, Retek (on behalf of
itself and the Retek Group) and HNC (on behalf of itself and the HNC Group)
shall each deliver to the other a certificate (the "Intercompany Accounts
Certificate"), executed by its respective Chief Financial Officer, which shall
set forth in reasonable detail (and be accompanied by appropriate supporting
documentation): (i) a list of all Retek Intercompany Payables and Retek
Intercompany Receivables arising or accrued on and after the Effective Date and
(ii) a list of all payments of Retek Intercompany Receivables made after the
Effective Date and prior to the Closing Date.
(c) Closing Offset and Settlement Payment. At the Closing, Retek (on
behalf of itself, RIS and the Retek Group) and HNC (on behalf of itself and the
HNC Group), shall set-off, settle and pay all then outstanding Retek
Intercompany Payables and Retek Intercompany Receivables, as follows. The
parties shall examine Schedule 2.6, the HNC Intercompany Accounts Certificate
and the Retek Intercompany Accounts Certificate, and shall determine from such
documents: (i) the amount of Retek Intercompany Payables as of the Closing Date;
(ii) the amount of Retek Intercompany Receivables as of the Closing Date; (iii)
the amount, if any, by which the Retek Intercompany Payables as of the Closing
Date exceeds the Retek Intercompany Receivables as of the Closing Date (such
excess amount if any, being referred to as the "Net Retek Closing Payable"); and
(iv) the amount, if any, by which the total Retek Intercompany Receivables as of
the Closing Date exceed the Retek Intercompany Payables as of the Closing Date
(such excess amount, if any, being referred to as the "Net Retek Closing
Receivable"). If there is a Net Retek Closing Payable, then at the Closing Retek
shall pay to HNC an amount equal to the Net Retek Closing Payable. If there is a
Net Retek Closing Receivable, then at the Closing HNC shall pay to Retek an
amount equal to the Net Retek Closing Receivable. If there is no Net Retek
Closing Payable and no Net Retek Closing Receivable, then no payment shall be
made by HNC or Retek under this Section at the Closing. Any dispute between HNC
and Retek regarding the amount of Retek Intercompany Payables and/or Retek
Intercompany Receivables shall be resolved in accordance with Article VII.
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ARTICLE III
THE SEPARATION AND THE INITIAL PUBLIC OFFERING
3.1 COOPERATION PRIOR TO THE SEPARATION. In addition to the matters set
forth in Section 3.2 concerning preparations for the Initial Public Offering and
in Article V (concerning preparations, if undertaken, for the Distribution), and
subject to the conditions set forth in Section 3.3, from and after the date of
this Agreement until the earlier of the Closing or the termination of this
Agreement pursuant to Section 8.1, HNC, Retek and RIS shall cooperate with each
other and use their diligent good faith efforts to prepare for the Separation,
including doing each of the following:
(a) Conduct Affairs in Ordinary Course. Except as set forth in this
Agreement and the Ancillary Agreements, Retek and RIS shall each continue to
conduct its affairs in the ordinary course of its business consistent with past
practices and shall operate its business for the sole benefit of HNC, its sole
stockholder; provided that notwithstanding the foregoing: (i) Retek shall be
entitled to exercise its option to purchase certain assets and/or stock of
Webtrak Limited pursuant to the terms and conditions of that certain Option
Agreement dated as of January 11, 1999 between Webtrak Limited and HNC, which
HNC has assigned to Retek, as such agreement was in effect on the date it was
assigned to Retek by HNC, pursuant to an Assignment of Option Agreement between
HNC and Retek dated as of September 9, 1999; and (ii) Retek may enter into, and
perform its obligations under, a loan or credit agreement with a bank or similar
financial institution for the borrowing of up to a maximum of Ten Million
Dollars ($10,000,000) in cash, provided that (i) such borrowing is on an
unsecured basis with no security interest or other lien imposed on any assets or
properties of Retek or any other member of the Retek Group or of HNC or any
other member of the HNC Group; and (ii) neither HNC nor any other member of the
HNC Group is required to provide any guarantee, indemnification or similar
assurance with regard to any borrowing or other obligation of Retek or any
member of the Retek Group with respect to such loan or credit agreement.
(b) Equity Incentive Plans. Retek shall establish and maintain for the
benefit of its directors, officers, employees, consultants and advisors and
those of its subsidiaries, equity incentive, stock option and similar plans or
arrangements satisfactory and acceptable to HNC;
(c) Board of Directors. Each of Retek, RIS and HNC shall nominate (and
if necessary and permitted to be done by them, elect and appoint) such persons
to the Retek and the RIS Board of Directors, as applicable, and such officers of
Retek and RIS, as applicable, as HNC may request in order to effect the
composition of the Board of Directors and officers of each of Retek and RIS
which must be in effect upon the Closing as provided in Section 3.3, consistent
with the provisions of the Corporate Rights Agreement, and to establish such
committees of their respective Boards as HNC may request in preparation for the
Initial Public Offering, consistent with the provisions of the Corporate Rights
Agreement;
(d) Charter Documents Amendments. HNC shall cause Retek and RIS to adopt
by all necessary board and stockholder actions any amendments to their
Certificates of Incorporation and Bylaws to effect changes necessary thereto so
that, upon the Closing, their Certificates of
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Incorporation and Bylaws conform, in each case, to those required to be
in effect upon the Closing as provided in Section 3.3;
(e) Remedial Actions. In addition to the actions set forth in the
preceding subparagraph (e), Retek and RIS shall consult with HNC in advance of
any remedial action therefor (unless delay in such consultation would create a
serious, present threat to the lives of HNC, Retek or RIS personnel or
third-parties present on their premises, or HNC's, Retek's or RIS's property)
when any event occurs which, in the judgment of Retek's or RIS's management
requires suspension or termination of any key Retek or RIS employee;
(f) Consents. Retek and RIS shall assist HNC in identifying each Retek
Asset or Retek Liability to be assigned at the Closing which requires an HNC
Release or Consent to assignment and co-operate with HNC to obtain such HNC
Releases and such Consents;
(g) Investigations. Retek and RIS shall notify HNC immediately (and in
no event more than 24 hours after the discovery thereof) of the receipt of any
correspondence or communications from any Governmental Authority revealing the
investigation of their affairs or any aspect thereof or correspondence or
communications from any Person revealing the commencement of any litigation
against either of them, and comply with HNC's reasonable requests in responding
to any such event;
(h) Material Adverse Effect. Retek and RIS shall inform HNC as promptly
as reasonably possible upon the occurrence of any other event the occurrence of
which may have a material adverse affect on the Retek Business, on the
Separation, the Initial Public Offering or the Distribution;
(i) Returns and Reports. Retek and RIS shall co-operate with HNC, in a
manner consistent with past practices, so that all tax returns filed jointly by
HNC with either or both of them shall be timely prepared and filed, any reports
(including HNC periodic reports under the Exchange Act) shall be timely prepared
and filed, and any other accounting or administrative matters between HNC and
Retek or HNC and RIS shall be handled in a reasonably prompt and prudent manner;
(j) Stock Options. Retek hereby agrees with HNC that: (a) prior to the
closing of the Initial Public Offering, Retek shall not grant any options to
purchase shares of Retek common stock to any person who holds options to
purchase shares of HNC common stock, unless such person first executes and
delivers to Retek and HNC a Notice of Election to Exchange Options attached to
the Retek Employee Stock Option Exchange Program documentation, dated October
18, 1999, the form of which has been agreed upon by HNC and Retek; and (b) until
the closing of the Initial Public Offering the aggregate number of shares of
Retek common stock reserved and/or previously issued under all Retek stock
option plans or stock option agreements at any one time shall not exceed an
aggregate total of 10,100,000 shares of Retek common stock, as presently
constituted.
(k) Insurance Matters. HNC, Retek and RIS shall use reasonable efforts
to maintain in full force and effect at all times up to and including the
Closing Date all property and casualty insurance programs currently maintained
by HNC, Retek or RIS as of the Effective Date,
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including, without limitation, primary and excess general liability, automobile,
workers' compensation, property and crime insurance policies (collectively, the
"Policies" and individually, a "Policy"). HNC and its subsidiaries shall retain,
with respect to any Covered Claims set forth on Schedule 3.1(k) relating to
periods prior to the Closing Date, all of their respective rights, benefits and
privileges, if any, under such Policies.
(i) Except to the extent otherwise expressly provided in
the Services Agreement, commencing on and as of the Closing Date,
Retek (for itself and for RIS) shall be responsible for
establishing and for maintaining its own separate insurance
programs (including, without limitation, primary and excess
general liability, automobile, workers' compensation, property,
director and officer liability, errors and omissions, fire,
crime, surety and other similar insurance policies) for
activities, losses and claims relating to any period on or after
the Closing Date involving Retek, RIS or any other member of the
Retek Group. Notwithstanding any other agreement or understanding
to the contrary, except as expressly otherwise provided in the
Services Agreement or in Section 3.1(k)(ii) with respect to
claims administration and financial administration of the
Policies, neither HNC nor any of its subsidiaries shall have any
responsibility for or obligation to Retek or its subsidiaries
relating to liability and casualty insurance matters for any
period, whether prior to, at or after the Closing Date;
(ii) HNC shall be responsible for the claims
administration and financial administration of all Policies for
Covered Claims relating to the assets, ownership or operation of
the Retek Business prior to the Closing Date. Retek shall be
responsible for all administrative and financial matters relating
to insurance policies established and maintained by Retek and RIS
for claims relating to any period on or after the Closing Date
involving Retek or RIS or any other member of the Retek Group.
(iii) Retek shall promptly notify HNC of any claim
(including any Covered Claim) relating to Retek or RIS under one
or more of the Policies relating to a period prior to the Closing
Date, and Retek and RIS agree to cooperate and coordinate with
HNC concerning any strategy HNC may reasonably elect to pursue to
secure coverage and payment for such claim by the appropriate
insurance carrier. Notwithstanding anything contained herein, in
any other agreement or applicable Policy or any understanding to
the contrary, except to the extent otherwise expressly provided
in the Services Agreement, Retek assumes responsibility for, and
shall pay to the appropriate insurance carriers or otherwise, any
premiums, retrospectively-rated premiums, defense costs,
indemnity payments, deductibles, retentions or other charges, as
appropriate (collectively, "Insurance Charges"), whenever
arising, which shall become due and payable under the terms and
conditions of any applicable Policy in respect of any
liabilities, losses, claims, actions or occurrences, whenever
arising or becoming known, involving or relating to any of the
assets, businesses, operations or liabilities of Retek or RIS
during the period after the Closing Date. To the extent that the
terms of any applicable Policy provide that HNC or a subsidiary
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thereof, as appropriate, shall have an obligation to pay or
guarantee the payment of any Insurance Charges for which Retek
has assumed responsibility in the preceding sentence, HNC or such
subsidiary shall be entitled to demand that Retek or RIS make
such payment directly to the person or entity entitled thereto.
In connection with any such demand, HNC shall submit to Retek or
RIS a copy of any invoice received by HNC or a subsidiary
pertaining to such Insurance Charges, together with appropriate
supporting documentation, if available. If Retek or its
subsidiary fails to pay any such Insurance Charges when due and
payable, whether at the request of the party entitled to payment
or upon demand by HNC or a subsidiary of HNC, HNC or a subsidiary
of HNC may (but shall not be required to) pay such Insurance
Charges for and on behalf of Retek or its subsidiary and,
thereafter, Retek or its subsidiary shall forthwith reimburse HNC
or such subsidiary of HNC for such payment; and
(l) HNC, Retek and RIS shall take any and all other steps reasonably
necessary to prepare for the Separation and to cause the satisfaction of the
closing conditions thereto.
3.2 PREPARATIONS FOR THE INITIAL PUBLIC OFFERING.
(a) Efforts; Abandonment. Subject to the conditions specified in Section
3.3, HNC, Retek and RIS shall use their good faith efforts to consummate the
Initial Public Offering; provided, however, that notwithstanding the foregoing,
HNC, in its sole and absolute discretion, may cause Retek to abandon the
Separation and the Initial Public Offering as provided in Section 8.1, in which
event the Separation shall not occur and Retek shall not consummate or close the
Initial Public Offering, and shall discontinue all efforts to consummate the
Initial Public Offering and shall withdraw the Registration Statement as soon as
practicable thereafter.
(b) Expenses. HNC and Retek shall pay the costs and expenses as
described in Section 8.2 as set forth therein.
(c) D&O Insurance. Retek shall diligently attempt to secure directors'
and officers' insurance on customary terms reasonably acceptable to HNC,
insuring the directors and officers of Retek.
(d) Proceeds of the Initial Public Offering. The Initial Public Offering
will include only a primary offering of Common Stock by Retek. Retek will retain
the net proceeds of the primary offering.
3.3 HNC BOARD ACTION; CONDITIONS PRECEDENT TO HNC'S OBLIGATION TO EFFECT THE
SEPARATION. HNC's Board of Directors shall, in its discretion, establish any
appropriate procedures, in addition to those set forth in this Section 3, in
connection with the Separation. In no event shall HNC be obligated to effect the
Separation and in no event shall the Separation occur until concurrently with
the initial closing of Retek's issuance and sale of shares of its Common Stock
in the Initial Public Offering and in no event shall the Separation occur unless
and until each of the following conditions, together with those established by
HNC's Board of Directors, shall have been satisfied, unless waived in writing by
HNC in its sole discretion:
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(a) All necessary regulatory approvals from Governmental Authorities for
the Separation, the Initial Public Offering and the performance of this
Agreement shall have been received;
(b) The Registration Statement shall have been filed with the
Commission, and Retek shall have been notified by the staff of the Commission
that it has no further comments on the Registration Statement and is prepared to
declare the Registration Statement effective upon Retek's request and no
stop-order or other action by the Commission prohibiting or enjoining the sale
of Retek Common Stock shall be outstanding and in effect;
(c) All required actions and filings with regard to state securities and
blue sky laws of the United States (and any comparable laws under any foreign
jurisdictions) with respect to the Initial Public Offering shall have been taken
and no impediment other than the effectiveness of the Registration Statement
shall exist to the qualification under such securities laws of the shares of
Common Stock to be issued in the Initial Public Offering;
(d) Retek's Board of Directors and executive officers, as named in the
Registration Statement and agreed on between Retek and HNC, shall have been
elected by HNC, as sole stockholder of Retek, and the Retek Certificate and the
Retek Bylaws, in the form set forth as exhibits to the Registration Statement,
shall be in effect;
(e) Retek shall have entered into indemnity agreements with, and for the
benefit of, each of its directors identified in subparagraph (d) of this Section
3.3, in a form reasonably satisfactory to HNC and shall have obtained directors'
and officers' insurance covering such directors under a policy reasonably
satisfactory in substance and amount to HNC;
(f) RIS's Board of Directors, as agreed on between Retek and HNC, shall
have been elected by Retek as sole stockholder of RIS and RIS' officers, as
agreed between Retek and HNC shall have been elected;
(g) The RIS Certificate and the RIS Bylaws, in the form satisfactory to
HNC and Retek, shall be in effect;
(h) Retek shall have entered into an Underwriting Agreement with the
managing Underwriters for the Initial Public Offering which shall be reasonably
satisfactory to HNC;
(i) An application for quotation of the Common Stock on the National
Market System of the Nasdaq Stock Market shall have been filed in connection
with the Initial Public Offering, and Retek shall have been notified that,
subject to the effectiveness of the Registration Statement and official notice
of issuance, the Common Stock has been accepted for quotation thereon;
(j) HNC's Board of Directors, Retek's Board of Directors and RIS's Board
of Directors shall have formally approved this Agreement, the Separation, the
Initial Public Offering, the Ancillary Agreements and the related transactions
contemplated thereby and shall
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not have abandoned, deferred or modified the Separation or the Initial Public
Offering at any time prior to the Closing Date;
(k) No restraining order or injunction or other order, decree or ruling
issued by a court or by a government, regulatory or administrative agency or
commission, and no statute, rule, regulation or executive order promulgated or
enacted by any Governmental Authority shall be in effect preventing the
consummation of the Separation or the Initial Public Offering or any of the
other transactions contemplated by this Agreement or any Ancillary Agreement,
except for the rules and regulations of such Governmental Authorities, the
Nasdaq Stock Market, the National Association of Securities Dealers and state
securities regulations which require that the Registration Statement be declared
effective before the consummation of the Initial Public Offering will be lawful;
(l) The HNC Releases shall have been obtained and HNC shall have been
released from any liabilities, guarantees or other obligations with respect to
any indebtedness or other obligations of Retek or its subsidiaries; provided,
that the satisfaction of such conditions shall not create any obligation on the
part of HNC to effect the Separation or in any way limit HNC's power of
termination set forth in Section 8.1 or alter the consequences of any such
termination from those specified in such Section;
(m) HNC shall be satisfied in its sole discretion that: (i) it will own
at least eighty-seven and four-tenths percent (87.4%) of the outstanding shares
of the capital stock of Retek immediately following the final closing of the
Initial Public Offering (assuming the exercise in full of any over-allotment
option held by the Underwriters in connection with the Initial Public Offering),
and at least forty million (40,000,000) shares of Retek's Common Stock; (ii) all
of the outstanding shares of Retek's Common Stock owned by HNC shall be duly and
validly issued, fully paid and non-assessable; (iii) the number of shares of
Retek Common Stock that are subject to outstanding options to purchase shares of
Retek Common Stock immediately after the closing of the Initial Public Offering
will not exceed a total of [_____________] such shares; and (iv) all conditions
to permit any Distribution of the Common Stock held by HNC to HNC's stockholders
after the closing of the Initial Public Offering to qualify as a tax-free
distribution to HNC, any member of the HNC Group, Retek, and RIS and any member
of the Retek Group and HNC's stockholders, to the extent applicable as of the
time of the Closing, can be satisfied and there shall be no event or condition
that is likely to cause any of such conditions not to be satisfied thereafter;
(n) Retek (and/or RIS, as applicable) shall have executed and delivered
each of the Ancillary Agreements to which each is a party;
(o) Retek shall either (i) have set-off, settled and paid all
outstanding Retek Intercompany Payables and Retek Intercompany Receivables in
accordance with the terms of Section 2.6 or (ii) have executed and delivered to
HNC a full recourse promissory note reasonably satisfactory in form and
substance to HNC obligating Retek to pay in full to HNC all sums due from Retek
to HNC pursuant to Section 2.6 of this Agreement by no later than the second
(2nd) business day after the Closing, and any portion of such sum not paid to
HNC by the
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second (2nd) business day after the Closing shall bear interest at the rate of
six percent (6%) per annum until paid to HNC;
(p) Such other actions as the parties hereto may, based upon the advice
of counsel, reasonably request to be taken prior to the Separation in order to
assure the successful completion of the Separation and the Initial Public
Offering and the other transactions contemplated by this Agreement shall have
been taken; and
(q) This Agreement shall not have been terminated.
3.4 CONDITION PRECEDENT TO RETEK'S OBLIGATION TO EFFECT THE SEPARATION.
Retek shall not be obligated to effect the Separation unless the following
condition shall have been satisfied, unless such condition is waived in writing
by Retek in its sole discretion:
(a) HNC shall have executed the Letter Agreement with John Buchanan,
Retek's Chief Executive Officer, in the form of Exhibit 6.
ARTICLE IV
INDEMNIFICATION
4.1 RELEASE OF CLAIMS.
(a) Release by Retek. Except as provided in Section 4.1(d), effective as
of the Closing Date, Retek does hereby, for itself and its Affiliates (other
than any member of the HNC Group), successors and assigns, and all Persons who
at any time prior to the Closing Date have been stockholders, directors,
officers, agents or employees of Retek or any of its Affiliates (other than any
member of the HNC Group) (in each case, in their respective capacities as such),
remise, release and forever discharge HNC and each member of the HNC Group,
their respective successors and assigns, and all Persons who at any time prior
to the Closing Date have been stockholders, directors, officers, agents or
employees of HNC or of any member of the HNC Group (in each case, in their
respective capacities as such), and their respective heirs, executors,
administrators, successors and assigns, from any and all Liabilities whatsoever,
whether at law or in equity (including any right of contribution), whether
arising under any contract or agreement, by operation of law or otherwise,
existing or arising from any facts or events occurring or failing to occur or
alleged to have occurred or to have failed to occur or any conditions existing
or alleged to have existed on or before the Closing Date, including in
connection with the transactions and all other activities to implement the
Separation and the Initial Public Offering.
(b) Release by RIS. Except as provided in Section 4.1(d), effective as
of the Closing Date, RIS does hereby, for itself and its Affiliates (other than
any member of the HNC Group), successors and assigns, and all Persons who at any
time prior to the Closing Date have been stockholders, directors, officers,
agents or employees of RIS or any of its Affiliates (other than any member of
the HNC Group) (in each case, in their respective capacities as such), remise,
release and forever discharge HNC and each member of the HNC Group, their
respective successors and assigns, and all Persons who at any time prior to the
Closing Date have been
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stockholders, directors, officers, agents or employees of HNC or of any member
of the HNC Group (in each case, in their respective capacities as such), and
their respective heirs, executors, administrators, successors and assigns, from
any and all Liabilities whatsoever, whether at law or in equity (including any
right of contribution), whether arising under any contract or agreement, by
operation of law or otherwise, existing or arising from any facts or events
occurring or failing to occur or alleged to have occurred or to have failed to
occur or any conditions existing or alleged to have existed on or before the
Closing Date, including in connection with the transactions and all other
activities to implement the Separation and the Initial Public Offering.
(c) Release by HNC. Except as provided in Section 4.1(d), effective as
of the Closing Date, HNC does hereby, for itself and each member of the HNC
Group, HNC's successors and assigns, and all Persons who at any time prior to
the Closing Date have been stockholders, directors, officers, agents or
employees of HNC or any member of the HNC Group (in each case, in their
respective capacities as such), remise, release and forever discharge Retek and
RIS, their respective successors and assigns, and all Persons who at any time
prior to the Closing Date have been stockholders, directors, officers, agents or
employees of Retek or RIS (in each case, in their respective capacities as
such), and their respective heirs, executors, administrators, successors and
assigns, from any and all Liabilities whatsoever, whether at law or in equity
(including any right of contribution), whether arising under any contract or
agreement, by operation of law or otherwise, existing or arising from any facts
or events occurring or failing to occur or alleged to have occurred or to have
failed to occur or any conditions existing or alleged to have existed on or
before the Closing Date, including in connection with the transactions and all
other activities to implement the Separation and the Initial Public Offering.
(d) Exclusions. Nothing contained in Section 4.1(a), 4.1(b) or 4.1(c)
shall impair any right of any Person to enforce this Agreement, any Ancillary
Agreement or any agreements, arrangements, commitments or understandings that
are specified in this Agreement as not to terminate as of the Closing Date, in
each case in accordance with its terms. In addition, nothing contained in
Section 4.1(a), 4.1(b) or 4.1(c) shall release any Person from:
(i) Any Liability provided in or resulting from any agreement
between Retek, and/or RIS, on the one hand, and any member of the HNC
Group, on the other hand, that is specified in this Agreement as not to
terminate as of the Closing Date, including but not limited to the
liability and obligation of Retek or HNC, as applicable, to make any
payment to the other required to be made by the provisions of Section
2.6;
(ii) Any Liability, contingent or otherwise, assumed,
transferred or assigned to such Person in accordance with this
Agreement;
(iii) Any Liability of any Person under this Agreement (including
but not limited to indemnification obligations of such Person under this
Article IV) or under any Ancillary Agreement;
(iv) Any Liability for the sale, lease or receipt of goods,
property or services purchased, obtained or used in the ordinary course
of business by Retek or RIS from any member of the HNC Group or by any
member of the HNC Group from Retek or RIS;
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(v) Any Liability that the parties may have with respect to
indemnification or contribution pursuant to this Agreement or any
Ancillary Agreement, including but not limited to indemnification or
contribution for claims brought against any of the parties by third
Persons, which Liability shall be governed by the provisions of this
Article IV and, if applicable, the appropriate provisions of the
Ancillary Agreements; or
(vi) Any Liability the release of which would result in the
release of any Person other than a Person released pursuant to this
Section 4.1; provided that the parties agree not to bring suit or permit
any of their subsidiaries to bring suit against any Person with respect
to any Liability to the extent that such Person would be released with
respect to such Liability by this Section 4.1 but for the provision of
this clause (vi).
(e) Covenant Not to Make Claims on Released Matters. Retek shall not
make any claim or demand or bring or commence any Action asserting any claim or
demand, including any claim of contribution or indemnification, against HNC or
any member of the HNC Group or any other Person released pursuant to Section
4.1(a), with respect to any Liabilities released pursuant to Section 4.1(a). RIS
shall not make any claim or demand or bring or commence any Action asserting any
claim or demand, including any claim of contribution or indemnification, against
HNC or any member of the HNC Group or any other Person released pursuant to
Section 4.1(b), with respect to any Liabilities released pursuant to Section
4.1(b). HNC shall not make, and shall not permit any member of the HNC Group to
make, any claim or demand or bring or commence any Action asserting any claim or
demand, including any claim of contribution or indemnification, against Retek or
RIS or any other Person released pursuant to Section 4.1(c), with respect to any
Liabilities released pursuant to Section 4.1(c).
(f) Intent. It is the intention of each of HNC, Retek and RIS, by virtue
of the provisions of this Section 4.1, to provide for a full and complete
release and discharge of all Liabilities existing or arising from all acts,
omissions and events occurring or failing to occur or alleged to have occurred
or failed to occur and all conditions existing or alleged to have existed on or
before the Closing Date, between or among Retek or RIS or any of their
Affiliates, on the one hand, and HNC or any member of the HNC Group, on the
other hand (including any contractual agreements or arrangements existing or
alleged to exist between or among such Persons on or before the Closing Date),
except as expressly set forth in Section 4.1(d). At any time, at the request of
any other party, each party shall execute and deliver, confirmations or releases
reflecting the provisions hereof.
(g) Waiver. In connection with the releases granted by the parties
hereunder, each of Retek, RIS and HNC, on behalf of itself and each Person for
whom it granted a release pursuant to this Section 4.1, hereby expressly waives
any and all rights conferred upon it by the provisions of Section 1542 of the
California Civil Code and any similar law. Section 1542 of the California Civil
Code reads as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT
WITH THE DEBTOR." Each of the parties hereto hereby represents and warrants that
it has discussed the provisions of Section 1542
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of the California Civil Code with its respective counsel and has been advised of
the effect of the waiver of the provisions of that Section.
4.2 INDEMNIFICATION BY RETEK AND RIS. Except as provided in Section 4.5
and except as otherwise expressly provided in any of the Ancillary Agreements,
from and after the Closing Date, Retek and RIS shall indemnify, defend and hold
harmless HNC, each member of the HNC Group and each of their respective
directors, officers, agents and employees and each of the heirs, executors,
successors and assigns of any of the foregoing (collectively, the "HNC
Indemnitees") from and against any and all Liabilities of the HNC Indemnitees
relating to, arising out of or resulting from any of the following items
(without duplication):
(a) The failure of Retek or any other Person to pay, perform or
otherwise promptly discharge any Retek Liability or Retek Contract in accordance
with their respective terms, whether prior to or after the Closing Date or the
Effective Date hereof;
(b) The Retek Business, any or all of the Retek Liabilities or any Retek
Contract;
(c) Any breach by Retek or RIS of this Agreement or any of the Ancillary
Agreements;
(d) Any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, with respect
to all information contained in the Registration Statement or the Prospectus;
provided, however, that Retek and RIS shall not be liable to any HNC Indemnitee
in any such case to the extent (and only to the extent) that any such liability
arises out of or relates to any untrue statement or allegedly untrue statement
or omission or alleged omission, directly relating to HNC that is contained in
the following parts of the Prospectus or the Registration Statement: (i) the
first sentence of the fourth paragraph in "Prospectus Summary - Retek Inc.";
(ii) the first sentence of the first paragraph in "Prospectus Summary - Our
Relationship with HNC Software Inc."; (iii) the first sentence of the second
risk factor in "Risk Factors - Risks Related to Securities Markets and Ownership
of Our Common Stock"; (iv) the second paragraph in "Our Separation from HNC -
Overview"; (v) the second paragraph and the third sentence of the third
paragraph in "Our Separation from HNC - Possible Future Distribution by HNC of
our Common Stock"; and (vi) all the information in "Principal Stockholder".
(e) Any violation by Retek or RIS of (i) the Securities Act, (ii) any
other federal law, rule or regulation regarding securities or (iii) any state or
other law, rule or regulation regarding securities in connection with the
Initial Public Offering or any subsequent offering or transaction involving
securities of Retek or RIS; provided however, that neither Retek nor RIS shall
be liable to provide indemnification for any Liabilities arising from matters
specifically described in the foregoing provisions of this subparagraph (e) that
were directly caused by or arose from information regarding an HNC Indemnitee
that is contained in a registration statement or prospectus giving rise to such
Liabilities if such information was provided by such HNC Indemnitee to Retek or
RIS specifically for use in such registration statement or prospectus; and
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(f) Any indemnification or contribution payments made by HNC to any of
the Underwriters (including but not limited to Credit Suisse First Boston
Corporation) that are paid or payable as a result of any indemnification
obligation of HNC or Retek arising under the Underwriting Agreement, that were
not paid or satisfied by Retek.
4.3 INDEMNIFICATION BY HNC. Except as provided in Section 4.5 and except as
otherwise expressly provided in any of the Ancillary Agreements, from and after
the Closing Date, HNC shall indemnify, defend and hold harmless Retek and each
of its subsidiaries and each of their respective directors, officers and
employees and each of the heirs, executors, successors and assigns of any of the
foregoing (collectively, the "Retek Indemnitees") from and against any and all
Liabilities of Retek Indemnitees relating to, arising out of or resulting from
any of the following items (without duplication):
(a) The failure of HNC or any other member of the HNC Group or any other
Person to pay, perform or otherwise promptly discharge any Liability of any
member of the HNC Group (other than Retek Liabilities) in accordance with its
terms, whether prior to or after the Closing Date or the date hereof;
(b) Any Liability of any member of the HNC Group other than Retek
Liabilities;
(c) Any breach by HNC or any member of the HNC Group of this Agreement
or any of the Ancillary Agreements.
(d) Any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact required to be stated
in the Registration Statement or necessary to make the statements in the
Registration Statement not misleading to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission directly relates to HNC and is contained in the following parts of the
Prospectus or the Registration Statement: (i) the first sentence of the fourth
paragraph in "Prospectus Summary - Retek Inc."; (ii) the first sentence of the
first paragraph in "Prospectus Summary - Our Relationship with HNC Software
Inc."; (iii) the first sentence of the second risk factor in "Risk Factors -
Risks Related to Securities Markets and Ownership of Our Common Stock"; (iv) the
second paragraph in "Our Separation from HNC - Overview"; (v) the second
paragraph and the third sentence of the third paragraph in "Our Separation from
HNC - Possible Future Distribution by HNC of our Common Stock"; and (vi) all the
information in "Principal Stockholder.
4.4 NOTICE AND PAYMENT OF CLAIMS. If any HNC Indemnitee or Retek Indemnitee
(the "Indemnified Party") determines that it is or may be entitled to
indemnification under this Article IV (other than in connection with any Action
subject to Section 4.5), then the Indemnified Party shall deliver to the person
from whom such indemnification is sought (the "Indemnifying Party"), a written
notice (a "Claim Notice") specifying, to the extent reasonably practicable, the
basis for its claim for indemnification and the amount for which the Indemnified
Party reasonably believes it is entitled to be indemnified. After the
Indemnifying Party shall have been notified of the amount for which the
Indemnified Party seeks indemnification, the Indemnifying Party shall, within
sixty (60) days after its receipt of such written notice, either (i) pay the
Indemnified Party such amount in cash or other immediately available funds (or
reach agreement with the
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Indemnified Party as to a mutually agreeable alternative payment schedule) or
(ii) object to the claim for indemnification or the amount thereof by giving the
Indemnified Party written notice setting forth the grounds therefor. Any
objection shall be resolved in accordance with the provisions of Article VII. If
the Indemnifying Party does not give such notice within such sixty (60) day
period, then the Indemnifying Party shall be deemed to have acknowledged its
liability for such claim to the extent that the amount of such liability is
specifically set forth in the Claim Notice and the Indemnified Party may
exercise any and all of its rights under applicable law to collect such amount.
4.5 NOTICE AND DEFENSE OF THIRD-PARTY CLAIMS. Promptly following the earlier
of (A) receipt of written notice of the commencement by a third party of any
Action against or otherwise involving any Indemnified Party or (B) receipt of
written information from a third party alleging the existence of a claim against
an Indemnified Party, in either case, with respect to which indemnification may
be sought by an Indemnified Party pursuant to Article IV of this Agreement (a
"Third-Party Claim"), the Indemnified Party shall give the Indemnifying Party
prompt written notice thereof. Failure of the Indemnified Party to give such
written notice as provided in this Section 4.5 shall not relieve the
Indemnifying Party of its obligations under this Agreement, except to the extent
that the Indemnifying Party is prejudiced by such failure to give notice. Such
notice shall describe the Third-Party Claim in reasonable detail, and attach any
documentation received from the claimant (including, if applicable, a copy of
any complaint filed against the Indemnified Party) asserting such Third-Party
Claim.
(a) Within thirty (30) days after receipt of such notice, the
Indemnifying Party may, by giving written notice thereof to the Indemnified
Party, (i) elect to assume the defense of such Third-Party Claim at its sole
cost and expense or (ii) object to the claim of indemnification for such
Third-Party Claim setting forth the grounds for its objection. Any objection
shall be resolved in accordance with the provisions of Article VII. If the
Indemnifying Party does not within such thirty (30) day period give the
Indemnified Party such notice, then the Indemnifying Party shall be deemed to
have acknowledged its liability for such Third-Party Claim.
(b) Any defense of a Third-Party Claim as to which the Indemnifying
Party has elected to assume the defense shall be conducted by counsel employed
by the Indemnifying Party and reasonably satisfactory to HNC (in the case of HNC
Indemnitees) or Retek (in the case of Retek Indemnitees). The Indemnified Party
shall have the right to participate in such proceedings and to be represented by
counsel of its own choosing at the Indemnified Party's sole cost and expense;
provided that if the defendants or parties against which relief is sought in any
such claim include both the Indemnifying Party and one or more Indemnified
Parties and, in the reasonable judgment of HNC (in the case of HNC Indemnitees)
or Retek (in the case of Retek Indemnitees), an actual or potential conflict of
interest between such Indemnified Parties and such Indemnifying Party exists in
respect of such claim or with regard to a defense thereto, such Indemnified
Parties shall have the right to employ one firm of counsel selected by HNC (for
HNC Indemnitees) or Retek (for Retek Indemnitees) and in that event the
reasonable fees and expenses of such separate counsel (but not more than one
separate counsel reasonably satisfactory to the Indemnifying Party) shall be
paid by such Indemnifying Party.
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(c) If the Indemnifying Party assumes the defense of a Third-Party
Claim, then the Indemnifying Party may settle or compromise the claim without
the prior written consent of the Indemnified Party; provided that without the
prior written consent of HNC (in the case of HNC Indemnitees) and Retek (in the
case of Retek Indemnitees), the Indemnifying Party may not agree to any such
settlement unless as a condition to such settlement the Indemnified Party
receives a written release from any and all liability relating to such
Third-Party Claim and such settlement or compromise does not include any remedy
or relief to be applied to or against the Indemnified Party or its assets,
properties or business, other than monetary damages for which the Indemnifying
Party shall be fully responsible hereunder and which the Indemnifying Party pays
upon execution of the settlement.
(d) If the Indemnifying Party does not assume the defense of a
Third-Party Claim for which it has acknowledged liability for indemnification
under this Article IV, HNC (in the case of HNC Indemnitees) and Retek (in the
case of Retek Indemnitees) may pursue the defense of such Third-Party Claim and
choose one firm of counsel in connection therewith. The Indemnifying Party is
required to reimburse HNC or Retek, as the case may be, on a current basis for
its reasonable expenses of investigation, reasonable attorney's fees and
reasonable out-of-pocket expenses as incurred by HNC (in the case of HNC
Indemnitees) and Retek (in the case of Retek Indemnitees) in defending against
such Third-Party Claim and the Indemnifying Party shall be bound by the result
obtained with respect to such Third-Party Claim with respect to such
Indemnifying Party's indemnification obligations under this Article IV, provided
that the Indemnifying Party shall not be liable for any settlement effected
without the consent of the Indemnifying Party, which consent shall not be
unreasonably withheld, delayed or conditioned.
(e) The Indemnifying Party shall pay to the Indemnified Party in cash
the amount for which the Indemnified Party is entitled to be indemnified (if
any) no later than the later of (i) the date on which the Indemnified Party
makes any payment in satisfaction (partial or otherwise) of the Third-Party
Claim or (ii) the date on which such Indemnifying Party's objection, if any, to
its responsibility for indemnification under this Article IV has been resolved
pursuant to the provisions of Article VII or by settlement or compromise or the
final nonappealable judgment of a court of competent jurisdiction.
4.6 INSURANCE PROCEEDS. The amount that any Indemnifying Party is or may be
required to pay to any Indemnified Party pursuant to this Article IV shall be
reduced (including, without limitation, retroactively) by any insurance proceeds
or other amounts actually recovered by or on behalf of such Indemnified Parties
in reduction of the related Liability. If an Indemnified Party shall have
received the payment required by this Agreement from an Indemnifying Party in
respect of a Liability and shall subsequently actually receive insurance
proceeds, or other amounts in respect of such Liability as specified above, then
such Indemnified Party shall pay to such Indemnifying Party a sum equal to the
amount of such insurance proceeds or other amounts actually received in respect
of such Liability.
4.7 CONTRIBUTION. If the indemnification provided for in this Article IV is
for any reason unavailable to an Indemnified Party in respect of any Liability
arising out of or related to information contained in or omitted from the
Registration Statement, then the Indemnifying Party, in lieu of indemnifying the
Indemnified Party shall contribute to the amount paid or
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payable by the Indemnified Party as a result of such Liability in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party, on the one hand, and the Indemnified Party, on the other hand, in
connection with the actions or omissions which resulted in such Liability. If
the Liability in question arises from statements or omissions that are untrue or
are alleged to be untrue, then the relative fault of the Indemnifying Party, on
the one hand, and of the Indemnified Party, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Indemnifying Party, on
the one hand, or the Indemnified Party, on the other hand; and the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such statement or omission; but not by reference to any
Indemnified Party's stock ownership in Retek. Notwithstanding the foregoing, no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
4.8 SUBROGATION. In the event of payment by an Indemnifying Party to any
Indemnified Party in connection with any Third-Party Claim, such Indemnifying
Party shall be subrogated to and shall stand in the first place of such
Indemnified Party as to any events or circumstances in respect of which such
Indemnified Party may have any right or claim relating to such Third-Party
Claim. Such Indemnified Party shall cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense of such Indemnifying Party, in
prosecuting any subrogated right or claim, provided, however, that this right of
subrogation shall be construed in such a way so that it does not discharge any
insurance carrier for an Indemnifying Party for any obligation under any
insurance policy which provides coverage for such Indemnifying Party from any
loss asserted or involved in or related to such Third-Party Claim.
4.9 NO THIRD-PARTY BENEFICIARIES. This Article IV shall inure to the benefit
of, and be enforceable by HNC, the HNC Indemnitees, Retek and Retek Indemnitees
and their respective successors and permitted assigns. The indemnification
provided for by this Article IV shall not inure to the benefit of any other
third party or parties, relieve any insurer who would otherwise be obligated to
pay any claim of the responsibility to pay such claim or, solely by virtue of
the indemnification provisions hereof, provide any subrogation rights with
respect thereto. Each party agrees to waive such subrogation rights against the
other to the fullest extent permitted.
4.10 REMEDIES CUMULATIVE. The remedies provided in this Article IV shall be
cumulative and shall not preclude assertion by any Indemnified Party of any
other rights or the seeking of any and all other remedies against an
Indemnifying Party. The procedures set forth in this Article IV, however, shall
be the exclusive procedures governing any indemnity action brought under this
Article IV or otherwise relating to Liabilities.
4.11 SURVIVAL OF INDEMNITIES. The rights and obligations of each of HNC and
Retek and their respective Indemnitees under this Article IV shall survive the
sale or other transfer by it of any assets or businesses or the assignment by it
of any Liabilities and shall, without limitation, survive the consummation and
closing of the Separation, the Initial Public Offering and (if it should ever
occur) the Distribution.
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ARTICLE V
THE DISTRIBUTION
5.1 POTENTIAL DISTRIBUTION. HNC currently intends (but HNC has not agreed or
committed that), following the consummation of the Initial Public Offering, to
complete the Distribution, subject to the satisfaction and fulfillment of
several conditions. These conditions would include, but not necessarily be
limited to, the following conditions: (a) HNC's receipt of a written ruling from
the Internal Revenue Service that the Distribution qualifies for tax-free
treatment under Section 355 of the Code such that HNC's stockholders and HNC and
its Affiliates will not recognize income for federal income tax purposes as a
result of the Distribution, (b) the approval and declaration of the Distribution
by HNC's Board of Directors, (c) the absence of any change in economic or market
conditions or other circumstances that would cause HNC's Board of Directors to
conclude that the Distribution was not in the best interests of HNC and HNC's
stockholders, and (d) HNC being able to effect the Distribution in compliance
with applicable laws (including but not limited to applicable securities laws
and the Delaware General Corporation Law) and HNC's contractual obligations.
However, HNC shall not have any obligation or commitment whatsoever so any
Person (including but not limited to Retek or RIS or their security holders) to
effect or consummate the Distribution. HNC shall, in its sole and absolute
discretion, determine when and whether to proceed with all or part of the
Distribution and all terms of the Distribution, including, without limitation,
the form, structure and terms of any transaction(s) and/or offering(s) to effect
the Distribution and the timing of and conditions to the consummation of the
Distribution. In addition, HNC may at any time and from time to time until the
completion of the Distribution abandon, modify or change any or all of the terms
of the Distribution, including without limitation, by accelerating or delaying
the timing of the consummation of all or part of the Distribution. Retek shall
cooperate with HNC in all commercially reasonable respects to accomplish the
Distribution (if HNC elects, in its sole and absolute discretion, to effect the
Distribution) and shall, at HNC's direction, promptly take any and all actions
necessary or desirable to effect the Distribution, including, without
limitation, the registration under the Securities Act of Retek Common Stock on
an appropriate registration form or forms to be designated by HNC. HNC shall
select any investment banker(s) and manager(s) in connection with the
Distribution, as well as any other institutions providing services in connection
with the Distribution.
5.2 CERTAIN MATTERS. If HNC elects, in its sole discretion, to effect the
Distribution, then from and after the distribution of Retek Common Stock in
connection with any transaction(s) included as part of the Distribution and
until such Retek Common Stock is duly transferred in accordance with applicable
law, Retek shall regard the Persons receiving Retek Common Stock in such
transaction(s) as record holders of Retek Common Stock in accordance with the
terms of such transaction(s) without requiring any action on the part of such
Persons. Retek agrees that, subject to any transfers of such stock, (a) each
such holder shall be entitled to receive all dividends payable on, and exercise
voting rights and all other rights and privileges with respect to, the shares of
Retek Common Stock then held by such holder and (b) each such holder shall be
entitled, without any action on the part of such holder, to receive one or more
certificates representing, or other evidence of ownership of, the shares of
Retek Common Stock then held by such holder. HNC shall cooperate, and shall
instruct the HNC stock transfer agent to cooperate,
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with Retek and the Retek stock transfer agent, and Retek shall cooperate, and
shall instruct the Retek stock transfer agent to cooperate, with HNC and the HNC
Transfer Agent, in connection with all aspects of the Distribution and all other
matters relating to the issuance and delivery of certificates representing, or
other evidence of ownership of, the shares of Retek Common Stock distributed to
the holders of HNC Common Stock in connection with any transaction(s) included
as part of the Distribution. Following the Distribution, HNC shall promptly, but
in no event no later than two (2) business days thereafter, instruct the HNC
stock transfer agent to deliver to the Retek stock transfer agent true, correct
and complete copies of the stock and transfer records reflecting the holders of
HNC Common Stock receiving shares of Retek Common Stock in connection with any
transaction(s) included as part of the Distribution.
5.3 FURTHER ASSURANCES REGARDING THE DISTRIBUTION.
(a) General. In addition to the actions specifically provided for
elsewhere in this Agreement, if HNC elects, in its sole discretion, to effect
the Distribution, then Retek shall, at HNC's direction, use all commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things commercially reasonably necessary, proper or
expeditious under applicable laws, regulations and agreements in order to
consummate and make effective the Distribution as promptly as reasonably
practicable. In particular, Retek agrees with HNC that, if in the reasonable
opinion of counsel for HNC or for Retek, it is necessary to register HNC's
transfer of its shares of Retek stock to HNC's stockholders in the Distribution
in order for the Distribution to be effected in compliance with the Securities
Act and/or for recipients of shares of Retek stock in the Distribution to be
able to immediately effect public resales of such Retek shares in compliance
with the Securities Act, then Retek will promptly cooperate with HNC to cause
the Distribution to be registered under the Securities Act, provided that HNC's
counsel has first consulted with Retek's counsel regarding the necessity of such
registration. Without limiting the generality of the foregoing, Retek shall, at
HNC's direction, cooperate with HNC, and execute and deliver, or use all
commercially reasonable efforts to cause to have executed and delivered, all
instruments, including instruments of conveyance, assignment and transfer, and
to make all filings with, and to obtain all consents, approvals or
authorizations of, any domestic or foreign Governmental Authority and each
self-regulatory body and securities exchange or automated inter-dealer quotation
system on which Retek's Common Stock is listed or quoted requested by HNC in
order to consummate and make effective the Distribution.
(b) Assistance. After the Closing Date, Retek and RIS shall cooperate
with HNC and shall take such actions as HNC may reasonably request (including
without limitation providing all information, preparing and filing all
documentation as HNC may reasonably request and, if requested by HNC,
participating in any conferences with the Internal Revenue Service to seek a
ruling as to whether the Distribution qualifies for tax-free treatment under
Section 355 of the Code such that HNC's stockholders and HNC and its Affiliates
will not recognize income for federal income tax purposes as a result of the
Distribution to assist HNC in planning or effecting the Distribution and/or in
determining whether the Distribution can be effected without recognition of
taxable income as aforesaid. If the Internal Revenue Service provides HNC with a
favorable ruling that the Distribution will be tax-free under Section 355 of the
Code, then after the Closing Date, Retek and RIS shall take such actions and
refrain from taking such actions as necessary to insure, as nearly as reasonably
possible consistent with the fiduciary duties which
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HNC, Retek and RIS owe to stockholders, that the conditions announced in any
such ruling to the tax-free nature of the Distribution are satisfied.
(c) Participation Rights. If HNC elects, in its sole and absolute
discretion, to effect the Distribution, then HNC shall keep Retek informed in a
timely manner of all material actions taken or proposed to be taken by HNC in
connection therewith. HNC shall, reasonably in advance of any submission by HNC
to the Internal Revenue Service of any request for a ruling by the Internal
Revenue Service as to whether the Distribution qualifies for tax-free treatment
under Section 355 of the Code such that HNC's stockholders and HNC and its
Affiliates will not recognize income for federal income tax purposes as a result
of the Distribution, (A) provide Retek with a draft copy of such ruling request,
(B) reasonably consider Retek's comments on such draft copy, and (C) provide
Retek with a final copy of such ruling request submitted to the Internal Revenue
Service.
(d) Capital Stock. Retek shall not issue any shares of its capital
stock such that, immediately following such issuance, HNC would be unable to
effect the Distribution on a tax-free basis as described in Section 5.1 and in
Section 5.3(b).
5.4 RETEK BOARD OF DIRECTORS. HNC and Retek shall each take all actions
which may be required to elect or otherwise appoint as directors of Retek,
effective immediately after the date on which the Distribution occurs, such
individuals as may be designated by Retek's Board of Directors (which
designation shall be approved by the majority of Retek's directors who are at
such time neither officers nor directors of HNC) as additional or substitute
members of the Board of Directors of Retek on the date on which the Distribution
occurs. HNC shall use its diligent and reasonable efforts to cause those members
of Retek's Board of Directors who are HNC's designees pursuant to Section 3.1 of
this Agreement or the Corporate Rights Agreement to resign from Retek's Board of
Directors as promptly as practicable after the date on which the Distribution
occurs.
5.5 CERTAIN POST-DISTRIBUTION TRANSACTIONS.
(a) Actions Inconsistent with the Rulings. In the event that stock of
Retek (or any successor thereto) is ultimately distributed to any or all of
HNC's stockholders pursuant to transactions intended to qualify under Section
355 of the Code, Retek shall not take or fail to take, and shall not permit any
Affiliate of Retek to take or fail to take, any action if such act or failure to
act would be inconsistent with any representation, covenant, information or
condition in any ruling, including for all purposes of this Agreement any
supplemental rulings (collectively, the "Rulings") issued by the Internal
Revenue Service in connection with the Distribution or in any representation,
covenant or any information included in any submission to the Internal Revenue
Service in connection with the Rulings (together with the Rulings, the "Rulings
and Submissions").
(b) Liability. Notwithstanding anything to the contrary in this
Agreement or the Tax Sharing Agreement, Retek and the Affiliates of Retek (other
than HNC or any member of the HNC Group) as of the time immediately following
the occurrence of the Distribution shall be jointly and severally liable for,
and shall indemnify and hold harmless HNC and each Affiliate of
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HNC (other than any member of the Retek Group) from and against, on an After-Tax
Basis, any and all Taxes (including interest, penalties and additions to Tax)
resulting from the Distribution to the extent such Taxes result in whole or in
part from (i) any event or transaction occurring after the Distribution that
involves the stock, assets or business of Retek or any of its Affiliates,
whether or not such event or transaction is the result of the direct actions of,
or within the control of, Retek or any of its Affiliates, (ii) any act or
failure to act on the part of Retek or any of its Affiliates after the
Distribution, (iii) the breach of any representation, covenant, information or
condition regarding Retek or any of its Affiliates included in the Rulings and
Submissions or in any Subsequent Ruling (as defined below), or (iv) any actions
contemplated by Section 5.5(c) below, regardless of whether HNC consents to such
actions pursuant to Section 5.5(d) below.
(c) Covenants Specific to Distribution Tax Matters. Retek agrees that
during the two (2) year period immediately following completion of the
Distribution (the "Restriction Period"), Retek and RIS will not, and will not
permit any Affiliates of Retek or RIS to:
(i) sell, exchange, distribute or otherwise transfer or agree
to sell, exchange, distribute or transfer, all or a
substantial portion of its assets (within the meaning of
Rev. Proc. 77-37), or any stock or equity interest in any
Affiliate of Retek, in a single transaction or a series of
transactions;
(ii) voluntarily dissolve or liquidate or enter into any
merger, consolidation or reorganization transaction;
(iii) (A)solicit any Person or Persons to make a tender offer
for the equity securities of Retek, (B) participate in or
support any unsolicited tender offer for the equity
securities of Retek or (C) approve any proposed business
combination or any transaction which would result in any
Person or Persons acquiring directly or indirectly a 50%
or greater interest (within the meaning of Section 355(e)
of the Code) in Retek;
(iv) whether before or subsequent to the expiration of the
Restriction Period, engage in any action described in
clause (iii) above if it is pursuant to an arrangement
negotiated (in whole or in part) prior to or subsequent to
the Distribution, even if at the time of the Distribution
it is subject to various conditions;
(v) liquidate, dispose of or otherwise discontinue or
otherwise fail to maintain the active conduct of the trade
or business relied upon in connection with the Rulings and
Submissions;
(vi) sell or otherwise issue to any Person or Persons, or
redeem or otherwise acquire from any Person or Persons,
any of its outstanding stock (other than stock purchases
meeting the requirements of section 4.05(1)(b) of Rev.
Proc. 96-30) that in the aggregate (including shares
issued and sold in the Initial Public Offering) would
result in the acquisition of a 50% or greater interest
(within the meaning of Section 355(e) of the Code)
directly or indirectly by any Person or Persons in Retek;
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(vii) issue any stock or equity interests (except pursuant to
the exercise of employee stock options) that in the
aggregate (including shares issued and sold in the Initial
Public Offering) would result in the acquisition of a 50%
or greater interest (within the meaning of Section 355(e)
of the Code) directly or indirectly by any Person or
Persons in Retek;
(viii) enter into any agreement for the sale or other disposition
of its stock or equity interests;
(ix) take any action inconsistent with the representations,
covenants or information included in the Rulings and
Submissions or that would result in the Distribution being
Taxable in whole or part to HNC or any of its Affiliates
or HNC's stockholders; or
(x) engage in any agreement, understanding, arrangement or
negotiation, directly or indirectly, with any Person or
Persons with respect to any of the restricted actions
described in clauses (i) through (ix) above.
If the Internal Revenue Service issues guidance, or Treasury
Regulations are issued under Section 355(e) of the Code, the parties hereby
agree to meet to review the covenants set forth in this Section 5.5(c) and to
consider making appropriate revisions thereto to reflect such guidance and/or
Treasury Regulations.
(d) Exceptions to Covenants. Notwithstanding Section 5.5(c) above,
Retek or any Affiliate of Retek may take actions inconsistent with the covenants
contained in such Section 5.5(c), if, and only if: (i) HNC expressly consents in
writing to such actions, such consent to be given or withheld by HNC in its sole
and absolute discretion taking into account solely the preservation of the
tax-free status of the Distribution under Section 355 of the Code; or (ii) HNC
has obtained a ruling from the Internal Revenue Service, in form and substance
reasonably satisfactory to HNC, to the effect that such proposed transaction
will not adversely affect the tax-free status of the Distribution under Section
355 of the Code (a "Subsequent Ruling"). Retek agrees that HNC is to have no
liability for any Tax to the extent such Tax results from any restricted action
or actions of Retek or any Affiliate of Retek that are permitted pursuant to
this Section 5.5(d) and Retek agrees to indemnify and hold harmless HNC against
any such Tax notwithstanding the giving by HNC of its consent to such restricted
action or actions or the receipt by HNC of any Subsequent Ruling.
(e) Cooperation. HNC shall cooperate with Retek in connection with a
request by Retek that HNC seek a Subsequent Ruling; provided, however, that HNC
shall have no obligation to seek a Subsequent Ruling if, after consulting with
its tax advisors, HNC in good faith believes that (a) it is not reasonably
probable that the Internal Revenue Service will rule that the proposed action or
transaction by Retek will not adversely affect the tax-free status of the
Distribution under Section 355 of the Code; or (b) seeking the Subsequent Ruling
may adversely affect or change any prior ruling or determination by the Internal
Revenue Service that the Distribution qualifies for tax-free treatment under
Section 355 of the Code. Such cooperation shall include, without limitation,
providing any information and/or representations required to enable HNC or its
counsel to obtain and maintain any
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Subsequent Ruling; provided that HNC's reasonable refusal to give or make a
representation will not be deemed to be a failure to cooperate.
(f) Notice. Until the first day after the Restriction Period, Retek will
provide adequate written notice to HNC of any action described in paragraphs (i)
through (x) of Section 5.5(c) above, without regard to the exceptions thereto,
within a period of time reasonably sufficient to enable HNC (i) to make the
determination to give or withhold its consent to such action as referred to in
Section 5.5(d), (ii) to prepare and seek any Subsequent Ruling in connection
with such proposed action, or (iii) to seek injunctive relief enjoining such
action pursuant to Section 5.6 hereof in a court of competent jurisdiction. Each
such notice shall set forth the terms and conditions of the proposed action,
including, without limitation, the nature of any related action proposed to be
taken by the Board of Directors of Retek, the approximate number of shares of
Retek stock (if any) proposed to be sold by Retek or otherwise issued by Retek
in such proposed action, if any, the approximate value of Retek's assets (or
assets of any of the Retek Subsidiaries) proposed to be transferred in such
proposed action, if any, and the proposed timetable for such transaction, all
with sufficient particularity to enable HNC to make such determination, to
prepare and seek such Subsequent Ruling or to seek such injunctive relief.
Promptly, but in any event within thirty (30) days, after HNC receives such
written notice from Retek, HNC shall notify Retek in writing of such
determination or of HNC's intent to seek (or not to seek) a Subsequent Ruling
and the proposed date for the initial submission thereof, which date shall not
be more than sixty (60) days after HNC so notifies Retek of its intent to seek
such Subsequent Ruling, provided that such 30-day period or 60-day period, as
the case may be, shall be appropriately extended for any period of noncompliance
by Retek with this Section 5.5(f). Notwithstanding the foregoing, nothing in
this Section 5.5(f) is intended to permit Retek to take any action described in
paragraphs (i) through (x) of Section 5.5(c) unless such action is taken as
permitted strictly in accordance with the provisions of Section 5.5(d).
5.6 ENFORCEMENT. The parties hereto acknowledge that irreparable harm would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
The parties hereto agree that, in order to preserve the tax-free treatment of
the Distribution, injunctive relief is appropriate to prevent any violation by
Retek or RIS of the foregoing covenants, provided, however, that injunctive
relief shall not be the exclusive legal or equitable remedy for any such
violation.
ARTICLE VI
ACCESS TO INFORMATION
6.1 PROVISION OF CERTAIN CORPORATE DOCUMENTS. Each of HNC, Retek and RIS
shall arrange as soon as practicable following the Closing Date for the
provision to the other party of the other party's existing corporate governance
documents (e.g. certificate of incorporation, by laws, minute books, stock
registers, stock certificates, etc.) in its possession relating to the other
party. Each party may make and keep copies of all such documents as it is
required to provide to any other party hereunder.
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6.2 ACCESS TO INFORMATION. From and after the Closing Date, each of HNC,
Retek and RIS shall afford the other, including its accountants, counsel and
other designated representatives, reasonable access (including using reasonable
efforts to give access to persons or firms possessing information) and
duplicating rights during normal business hours to all records, books,
contracts, instruments, computer data and other data and information in such
party's possession relating to the business and affairs of the other (other than
data and information subject to an attorney/client or other privilege), insofar
as such access is reasonably required by the other party including, without
limitation, for audit, accounting and litigation purposes, as well as for
purposes of fulfilling disclosure and reporting obligations. In particular, for
so long as HNC is required to include, incorporate or reflect financial
information, financial statements or operating results of Retek and/or any other
member of the Retek Group (a) in HNC's financial statements under generally
accepted accounting principles and/or (b) in any reports or filings required to
be made by HNC under the Securities Act, the Exchange Act or other applicable
law, then Retek shall (i) provide HNC in good faith with prompt and full access
to such information, including the right to duplicate and retain copies of such
information, (ii) cooperate promptly with HNC as necessary to enable HNC to
timely prepare and file or make any such financial statements, reports or
filings and (iii) provide all time, attention and effort of Retek personnel as
may be reasonably requested by HNC to assist HNC in preparing any such financial
statements, reports or filings.
6.3 LITIGATION COOPERATION. Each of HNC, Retek and RIS shall use reasonable
efforts to make available to the other(s), upon written request, its officers,
directors, employees and agents as witnesses to the extent that such persons may
reasonably be required in connection with any legal, administrative or other
proceedings arising out of the business of the other in which the requesting
party may from time to time be involved.
6.4 REIMBURSEMENT. Each party providing witnesses under Section 6.3 to the
other shall be entitled to receive from the party for whom the witness is
provided, upon the presentation of invoices therefor, payment for all
out-of-pocket costs and expenses as may be reasonably incurred in providing such
witnesses.
6.5 CONFIDENTIALITY. Subject to Section 6.6, each party and each of its
subsidiaries shall hold and shall cause its respective directors, officers,
employees, agents, consultants and advisors to hold, in strict confidence,
unless compelled to disclose by judicial or administrative process or, in the
opinion of its counsel, by other requirements of law, all confidential, trade
secret or proprietary information (other than any such information relating
solely to the business or affairs of such party) concerning the other party
(except to the extent that such information can be shown to have been (i) in the
public domain through no fault of such party, (ii) later lawfully acquired on a
non-confidential basis from other sources by the party to which it was
furnished, and without breach of any obligation or duty by a third-party
concerning confidentiality, (iii) independently generated without reference to
any proprietary or confidential information of the other party, or (iv)
information that may be disclosed pursuant to any Ancillary Agreement). No party
shall release or disclose any such information to any other person, except its
auditors, attorneys, financial advisors, bankers and other consultants and
advisors who shall be advised of and agree to comply with the provisions of this
Section 6.5.
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6.6 PROTECTIVE ARRANGEMENTs. If any party hereto (or any of its
subsidiaries) either (a) determines on the advice of its counsel that it is
required to disclose any information pursuant to applicable law (including but
not limited to disclosure required pursuant to the Code, the Securities Act or
the Exchange Act, including the disclosure of financial and other information in
filings or reports made under the Securities Act or the Exchange Act) or (b)
receives any demand under lawful process or from any Governmental Authority, to
disclose or provide information of any other party hereto (or any of its
subsidiaries) that is subject to the confidentiality provisions hereof, such
party shall (except with respect to filings in reports under the Exchange Act
that require such disclosure) notify the other party prior to disclosing or
providing such information and shall cooperate at the expense of the requesting
party in seeking any reasonable protective arrangements requested by such other
party. Subject to the foregoing, the Person that received such request may
thereafter disclose or provide information to the extent required by such law
(as so advised by counsel) or by lawful process or such Governmental Authority.
6.7 MAIL. After the Closing Date, each of HNC, Retek and RIS may receive
mail, telegrams, packages and other communications properly belonging to the
other. Accordingly, at all times after the Closing Date, each of HNC, Retek and
RIS authorizes the other to receive and open all mail, telegrams, packages and
other communications received by it and not unambiguously addressed to or
intended for the other party or any of the other party's officers or directors
specifically in their capacities as such, and to retain the same to the extent
that they relate to the business of the receiving party or, to the extent that
they do not relate to the business of the receiving party and do relate to the
business of the other party, or to the extent that they relate to both
businesses, the receiving party shall promptly contact the other party by
telephone for delivery instructions and such mail, telegrams, packages or other
communications (or, in case the same relate to both businesses, copies thereof)
shall promptly be forwarded to the other party in accordance with its delivery
instructions. If any party receives mail, telegrams, packages and other
communications belonging to another party and unambiguously addressed to or
intended for such other party, then the party who receives such material shall
promptly contact the other party by telephone for delivery instructions and such
mail, telegrams, packages or other communications shall promptly be forwarded to
the other party in accordance with its delivery instructions. The foregoing
provisions of this Section 6.7 shall constitute full authorization to the postal
authorities, all telegraph and courier companies and all other persons to make
deliveries to HNC, Retek or RIS, as the case may be, addressed to either of them
or to any of their officers or directors specifically in their capacities as
such. The provisions of this Section 6.7 are not intended to and shall not be
deemed to constitute an authorization by either HNC, Retek or RIS to permit any
of the other to accept service of process on its behalf, and no party is or
shall be deemed to be the agent of the other for service of process purposes or
for any other purpose.
6.8 RETENTION OF RECORDS. Except as otherwise required by law or agreed to
in writing, each party shall, and shall cause each of its respective
subsidiaries to, retain all information relating to the other party's business
in accordance with such party's written record retention policy or, if no such
policy exists, the past practice of such party. Notwithstanding the foregoing
and except as provided in any Ancillary Agreement, any party may destroy or
otherwise dispose of any such information at any time upon not less than thirty
(30) days prior written notice to the other party, specifying the information
proposed to be destroyed or disposed of; provided, however, that if the
recipient of such notice shall request in writing prior to the scheduled date
for such
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destruction or disposal that any of the information proposed to be
destroyed or disposed of be delivered to such requesting party, the party
proposing the destruction or disposal shall promptly arrange for the delivery of
such information as was requested at the expense of the requesting party. Except
as provided in the Tax Sharing Agreement or otherwise required by law or agreed
to in writing, either party shall have the right to destroy or otherwise dispose
of any such information at any time after the second anniversary of the
Effective Date.
ARTICLE VII
DISPUTE RESOLUTION
7.1 PROCEDURE. The parties shall attempt in good faith to resolve any
dispute arising out of or relating to this Agreement and shall attempt in good
faith to negotiate a settlement of any dispute arising under this Agreement
pursuant to the following process:
(a) Any party having a dispute or claim shall give the other party
written notice stating the nature of the dispute in reasonable detail. Within
twenty (20) business days after delivery of the notice, the receiving party
shall submit to the other a written response also in reasonable detail. Within
five (5) business days after delivery of the written response the Chief
Financial Officers (or other individual who has authority to settle the
controversy and who has direct responsibility for administration of the
relationships established pursuant to this Agreement) for each affected party
shall meet (in person or by telephone) at a mutually acceptable time and place
(including telephonic conference), and thereafter as often as they reasonably
deem necessary, to attempt to resolve the dispute. All reasonable requests for
information made by one party to the other shall be honored.
(b) If such matter has not been resolved within twenty (20) business
days of the referral of the dispute to the Chief Financial Officers, then the
parties may pursue litigation or, if mutually agreed, alternative dispute
resolution mechanisms; provided that a party may earlier pursue litigation if
reasonably necessary to prevent or enjoin any breach of this Agreement for which
money damages would be an inadequate remedy, or that would alter the status quo
or result in injury to such party that cannot readily be compensated for in
money damages.
7.2 SCOPE OF SECTION 7.1. The provisions of Section 7.1 shall apply only to
disputes arising under this Agreement (and not to disputes arising under any
Ancillary Agreement).
ARTICLE VIII
MISCELLANEOUS
8.1 TERMINATION. This Agreement may be terminated and the Separation and the
Initial Public Offering may be deferred, modified or abandoned at any time prior
to the Closing Date by, and in the sole and absolute discretion of, the Board of
Directors of HNC without the need for any approval or consent of Retek or RIS.
In the event of such termination, no party hereto (or any of its respective
directors or officers) shall have any liability to any other party pursuant to
this Agreement and the Initial Public Offering shall be discontinued and
terminated.
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8.2. EXPENSES. Except for the fees and disbursements related to HNC's
counsel, accountants and other advisors, Retek shall pay or cause to be paid all
third party expenses relating to the Initial Public Offering or any other
primary offering by Retek prior to a Distribution, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto or any other registration statements, (ii) the preparation, printing and
delivery to any underwriters of any underwriting agreement, any agreement among
underwriters and any other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Retek Common Stock or any
other securities of Retek, (iii) the preparation, issuance and delivery of the
certificates for the Retek Common Stock or any other securities of Retek to any
underwriters or any other purchasers, including any stock or other transfer
taxes and any stamp or other duties payable upon the sale, issuance or delivery
of the Retek Common Stock or any other securities of Retek to any underwriters
or any other securities, (iv) the qualification of the Retek Common Stock or any
other securities of Retek under the securities laws in accordance with any state
(Blue Sky laws), including filing fees and the reasonable fees and disbursements
of counsel for any underwriters in connection therewith and in connection with
the preparation of the Blue Sky Survey and any supplement thereto, (v) the
printing and delivery to any underwriters of copies of each preliminary
prospectus, any term sheets and of the final prospectus and any amendments or
supplements thereto, (vi) the preparation, printing and delivery to any
underwriters of copies of the Blue Sky Survey and any supplement thereto, (vii)
the fees and expenses of any transfer agent or registrar for the Retek Common
Stock or any other securities of Retek, (viii) the filing fees incident to, and
the reasonable fees and disbursements of counsel to any underwriters in
connection with, the review by the National Association of Securities Dealers,
Inc. of the terms of the sale of the Retek Common Stock or any other securities
of Retek and (ix) the fees and expenses incurred in connection with the listing
of the Retek Common Stock or any other securities of Retek on the Nasdaq Stock
Market, any national securities exchange or any national over the counter
quotation system.
8.3 NOTICES. All notices and communications under this Agreement shall be in
writing and any communication or delivery hereunder shall be deemed to have been
duly given when received addressed as follows:
If to HNC, to:
HNC Software Inc.
5935 Cornerstone Court West
San Diego, California 92121
Attn: Chief Financial Officer
Telecopy Number: (858) 452-3220
If to Retek, to:
Retek Inc.
Midwest Plaza
801 Nicollet Mall, 11th Floor
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Minneapolis, MN 55402
Attn: President
Telecopy Number: (612) 630-5641
If to RIS, to:
c/o Retek Inc.
Midwest Plaza
801 Nicollet Mall, 11th Floor
Minneapolis, MN 55402
Attn: President
Telecopy Number: (612) 630-5641
Any party may, by written notice so delivered to the other party, change
the address to which delivery of any notice shall thereafter be made.
8.4. AMENDMENT AND WAIVER. This Agreement may not be altered or amended, nor
may rights hereunder be waived, except by an instrument in writing executed by
the party or parties to be charged with such amendment or waiver. No waiver of
any terms, provision or condition of or failure to exercise or delay in
exercising any rights or remedies under this Agreement, in any one or more
instances shall be deemed to be, or construed as, a further or continuing waiver
of any such term, provision, condition, right or remedy or as a waiver of any
other term, provision or condition of this Agreement.
8.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original instrument, but all of
which together shall constitute but one and the same Agreement. This Agreement
will become binding when one or more counterparts hereof, individually or taken
together, will bear the signatures of all the parties reflected hereon as
signatories.
8.6 GOVERNING LAW; JURISDICTION; FORUM. This Agreement shall be construed in
accordance with, and governed by, the internal laws of the State of California,
without regard to the conflicts of law rules of such state. Each party hereto
expressly submits and consents in advance to the non-exclusive jurisdiction of
the State and Federal courts sitting in the City of San Diego, State of
California, in any Action between the parties arising under this Agreement or
under any Ancillary Agreement, and hereby waives any claim that any such state
or federal court is an inconvenient or forum or improper venue.
8.7 ENTIRE AGREEMENT. This Agreement including the schedules and exhibits
hereto, together with the Ancillary Agreements, constitute the entire agreement
and understanding of the parties hereto with respect to the subject matter
hereof, superseding all negotiations, prior discussions and prior agreements and
understandings relating to such subject matter. To the extent that the
provisions of this Agreement are inconsistent with the provisions of any
Ancillary Agreements, the provisions of such Ancillary Agreement shall prevail.
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8.8 PARTIES IN INTEREST. None of the parties hereto may assign its rights or
delegate any of its duties under this Agreement without the prior written
consent of each other party; provided, however, that the rights and obligations
of HNC may be assigned, without the consent of Retek or RIS, pursuant to a
merger, exchange, recapitalization or other reorganization to which HNC is a
party or by operation of law. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective successors and
permitted assigns. Nothing contained in this Agreement, express or implied, is
intended to confer any benefits, rights or remedies upon any person or entity
other than HNC and Retek, and HNC Indemnitees and Retek Indemnitees under
Article IV hereof.
8.9 FURTHER ASSURANCES AND CONSENTS. Subject to HNC's rights of termination
under Section 8.1, in addition to the actions specifically provided for
elsewhere in this Agreement, each of the parties hereto will use its reasonable
efforts to (i) execute and deliver such further instruments and documents and
take such other actions as any other party may reasonably request in order to
effectuate the purposes of this Agreement and to carry out the terms hereof and
(ii) take, or cause to be taken, all actions, and to do, or cause to be done,
all things, reasonably necessary, proper or advisable under applicable laws,
regulations and agreements or otherwise to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
using its reasonable efforts to obtain any Consents and to make any filings and
applications necessary or desirable in order to consummate the transactions
contemplated by this Agreement; provided that no party hereto shall be obligated
to pay any consideration therefor (except for filing fees and other similar
charges) to any third party from whom such Consents and amendments are requested
or to take any action or omit to take any action if the taking of or the
omission to take such action would be unreasonably burdensome to the party or
its business.
8.10 EXHIBITS AND SCHEDULES. The Exhibits and Schedules shall be construed
with and as an integral part of this Agreement to the same extent as if the same
had been set forth verbatim herein.
8.11 LEGAL ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
enforceability in any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction. Without prejudice to any rights or
remedies otherwise available to any party hereto, each party hereto acknowledges
that damages would be an inadequate remedy for any breach of the provisions of
this Agreement and agrees that the obligations of the parties hereunder shall be
specifically enforceable.
8.12 TITLES AND HEADINGS. Titles and headings to Sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
[THE REMAINDER OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the day and year first above written.
HNC Software Inc.
By
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
RETEK INC.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
RETEK INFORMATION SYSTEMS, INC.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
Attachment:
List of Exhibits
List of Schedules
[SIGNATURE PAGE TO SEPARATION AGREEMENT]
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LIST OF EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit 1 -- Corporate Rights Agreement
Exhibit 2 -- License Agreement
Exhibit 3 -- Services Agreement
Exhibit 4 -- Stock Contribution Agreement
Exhibit 5 -- Tax Sharing Agreement
Exhibit 6 -- Letter Agreement
</TABLE>
<PAGE> 39
LIST OF SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 1.1(a) -- Retek Contracts
Schedule 2.6 -- Retek Intercompany Payables and Receivables
Schedule 3.1(k) -- Covered Claims
</TABLE>
<PAGE> 1
EXHIBIT 2.3
FORM OF TECHNOLOGY LICENSE AGREEMENT
This Technology License Agreement (this "AGREEMENT") is made and
entered into as of __________, 1999 (the "EFFECTIVE DATE"), by and between HNC
Software Inc., a Delaware corporation having its principal place of business at
5935 Cornerstone Court West, San Diego, California 92121 ("HNC"), and Retek Inc.
("RETEK"), a Delaware corporation having its principal place of business at
Midwest Plaza, 801 Nicollet Mall, 11th Floor, Minneapolis, MN 55402 and, solely
for purposes of Section 3.3, Retek Information Systems Inc., a Delaware
corporation ("RIS").
RECITALS
A. As of the Effective Date, Retek is a wholly-owned subsidiary of HNC,
and RIS is a wholly-owned subsidiary of HNC.
B. HNC's Board of Directors has determined that it is in the best
interests of HNC and its stockholders to separate the businesses of Retek and
RIS from HNC's other operations. In furtherance of that objective, HNC has also
determined that it is appropriate and desirable for HNC to contribute and
transfer to Retek all of the capital stock of RIS which HNC owns (so that RIS
will become a wholly-owned subsidiary of Retek), and that Retek issue and sell
shares of its common stock in an initial public offering registered under the
Securities Act of 1933, as amended, as contemplated by a Separation Agreement
among HNC, Retek and RIS dated as of ___________, 1999 (the "SEPARATION
AGREEMENT").
C. HNC has previously given RIS access to certain software and know-how
owned by HNC, which RIS has incorporated into certain RIS products, and the
parties desire to enter into this Agreement, pursuant to the Separation
Agreement, in order to confirm the terms and conditions on which Retek will be
licensed, on a non-exclusive basis, to use such HNC software and know-how.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual agreements, provisions and covenants contained in this Agreement, the
parties hereby agree as follows:
ARTICLE 1: CERTAIN DEFINITIONS
For the purposes of this Agreement:
1.1 "DERIVATIVE WORK" mean any additions, modifications, improvements
or enhancements based upon or incorporating the Licensed Technology, such as
modifications, enhancements or any other form in which the Licensed Software may
be recast, transformed or adapted.
<PAGE> 2
1.2 "FIELD OF USE" means, and is limited to, the field of software
products and/or software-based services that are both: (a) designed specifically
to provide, automate, manage and/or otherwise facilitate any one or more of the
following functions or applications for Retailers (as defined below) and/or the
members of their Retail Supply Chain (as defined below): the design,
manufacture, assembly, shipment, import, storage, delivery, tracking, marketing,
merchandising, retail store management, inventory planning, inventory management
and/or the pricing of, consumer goods sold at retail; and (b) marketed for
ultimate use solely by Retailers and/or the members of their Retail Supply
Chain. The "Field of Use" shall not include any functions or applications not
expressly described in the preceding sentence, and shall, without limitation,
not include any functions or applications relating to risk management.
1.3 "INTELLECTUAL PROPERTY RIGHTS" means, collectively, all of the
following worldwide intangible legal rights, whether or not filed, perfected,
registered or recorded and whether now or hereafter existing, filed, issued or
acquired: (i) patents, patent applications, and patent rights, including any and
all continuations, divisions, reissues, reexaminations or extensions thereof;
(ii) rights associated with works of authorship, including but not limited to
copyrights, copyright applications and copyright registrations, Moral Rights (as
defined below); (iii) rights relating to the protection of trade secrets,
know-how and other confidential information, including but not limited to rights
in industrial property and all associated information and other confidential or
proprietary information; (iv) industrial design rights; and (v) any rights
analogous to those set forth in the preceding clauses and any other proprietary
rights relating to intangible property; but specifically excluding trademarks,
service marks, logos, trade dress, trade names and service names;
1.4 "LICENSED KNOW-HOW" means the proprietary know-how and trade
secrets related to the Licensed Software which were delivered by HNC to Retek in
tangible form on or before October 15, 1999, and all Intellectual Property
Rights therein.
1.5 "LICENSED SOFTWARE" means the software described in Exhibit A
hereto, in the form in which such software has been delivered by HNC to RIS
prior to the Effective Date, and all Intellectual Property Rights therein.
1.6 "LICENSED TECHNOLOGY" means the Licensed Know-How and the Licensed
Software, collectively.
1.7 "MORAL RIGHTS" means any rights of paternity or integrity, any
right to claim authorship of, to object to or prevent any distortion, mutilation
or modification of, or other derogatory action in relation to, the subject work,
whether or not such would be prejudicial to the author's honor or reputation, to
withdraw from circulation or control the publication or distribution of the
subject work, and any similar right, existing under judicial or statutory law of
any country in the world, or under any treaty, regardless of whether or not such
right is denominated or generally referred to as a "moral" right.
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<PAGE> 3
1.8 "PERMITTED DERIVATIVE WORK" means a software product that is a
Derivative Work that is solely within the Field of Use. The term "Permitted
Derivative Work" does not include any software product that addresses any
different business function or functions than those expressly included within
the Field of Use.
1.9 "RETAILERS" means businesses whose primary business is the sale of
consumer goods at retail.
1.10 "RETAIL SUPPLY CHAIN" means wholesalers, distributors,
manufacturers, suppliers, brokers, bailors and transporters of consumer goods
sold at retail.
ARTICLE 2: NON-EXCLUSIVE LICENSE GRANT
2.1 LICENSE GRANT. Subject to the terms, conditions and limitations of
this Agreement, HNC hereby grants to Retek a non-exclusive, non-transferable,
worldwide, perpetual, royalty-free (except as provided in Article 4 hereof)
license under HNC's Intellectual Property Rights:
(a) to use Licensed Technology internally and to copy Licensed
Software internally, solely (i) for internal purposes, and/or (ii) to create and
test Permitted Derivative Works;
(b) to market, sell, license and distribute Licensed Software
and/or Permitted Derivative Works created by Retek pursuant to the license
rights granted in subparagraph 2.1(a) above, but only as an embedded component
of a software product that is solely within the Field of Use; and
(c) to use Licensed Technology and/or Permitted Derivative
Works created by Retek pursuant to the license rights granted in subparagraph
2.1(a) above, in each case only internally and only in order to provide services
that are solely within the Field of Use to Retailers and members of their Retail
Supply Chains.
2.2 RESTRICTIONS. Notwithstanding anything herein to the contrary,
Retek is not licensed to, and Retek expressly agrees that it shall not (and
shall not permit any third party to):
(a) provide any third party with access to (i) any source code
of any Licensed Software or any Derivative Work of the Licensed Technology,
except that Retek's licensees may be provided with source code solely for their
internal use without any right to further copy or distribute such source code,
which restriction shall be included in all Retek's license agreements with its
licensees, or (ii) to any Licensed Know-How in any form whatsoever;
(b) sublicense or otherwise allow or permit any third party to
create or develop any Derivative Work of any Licensed Technology.
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<PAGE> 4
In addition, Retek acknowledges and agrees that, except to the extent
necessary for Retek to exercise its rights under the licenses granted in this
Agreement, Retek is not being granted, and will not hold, any license or other
rights whatsoever with respect to HNC's proprietary context vector technology.
Retek acknowledges and agrees that the restrictions set forth in this
Section 2 constitute a material inducement and consideration for HNC's
willingness to grant the licenses set forth in Section 2.1. Any failure of Retek
to adhere to these restrictions will be considered a material failure of
consideration and a material breach of this Agreement that will entitle HNC to
terminate this Agreement and all Retek's rights and licenses hereunder upon
written notice to Retek in accordance with the provisions of Section 10.2(b).
2.3 RESERVATION OF RIGHTS. Retek's rights in the Licensed Technology
are hereby limited to those license rights expressly granted to Retek under
Section 2.1 of this Agreement and all rights not expressly granted to Retek
herein are expressly reserved and retained by HNC.
2.4 TRADEMARKS. Nothing herein shall be construed to grant any right or
license to Retek to use any of HNC's trademarks, service marks, logos, trade
dress, trade names, product names, or service names or goodwill associated
therewith.
2.5 NO RIGHT TO UPDATES, ETC. Neither HNC nor any of its affiliates
shall have any obligation whatsoever to provide Retek with any update, upgrade,
new version, new release, modification or enhancement of any Licensed
Technology.
ARTICLE 3: OWNERSHIP
3.1 HNC OWNERSHIP. Retek acknowledges that HNC and its suppliers own
all right, title and interest in and to the Licensed Technology and all
Intellectual Property Rights therein. Retek will not delete or in any manner
alter the copyright, or other proprietary rights notices of HNC appearing on or
in the Licensed Technology as delivered to Retek. Retek will reproduce such
notices on all copies it makes of the Licensed Technology (including Derivative
Works of Licensed Technology), in whole or in part. In addition, Retek will use
its reasonable efforts to protect HNC's Intellectual Property Rights in the
Licensed Technology and will report promptly to HNC any infringement of such
rights of which Retek becomes aware. HNC reserves the right at its discretion to
assert claims against third parties for infringement or misappropriation of its
Intellectual Property Rights in the Licensed Technology and to retain all
compensation, damages and other amount payable to HNC with regard to such
infringement or misappropriation.
3.2 RETEK OWNERSHIP. Subject to the license grants set forth in Section
2.1 and HNC's ownership rights described in Section 3.1, Retek will own all
worldwide right, title and interest in and to the Permitted Derivative Works
created by Retek pursuant to and in accordance with Section 2.1. Retek shall not
have or acquire any right, title or interest
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<PAGE> 5
whatsoever in or to any of the Licensed Technology or any Intellectual Property
Rights therein. Notwithstanding the provisions of this Section, Retek shall not
exploit any Derivative Works created by Retek in any manner other than the
manner in which Retek is expressly licensed to exploit the Licensed Technology
or any Permitted Derivative Works under Section 2.1. Neither Retek nor any of
its affiliates shall be obligated to license or otherwise provide HNC any
Derivative Works of the Licensed Technology for HNC's use.
3.3 DFM. The parties acknowledge and agree that: (a) Retek currently
markets a software product known as the "Demand Forecasting Module" (the "DFM"),
which was originally known as "SkuPlan"; (b) the DFM was originally developed by
HNC and its formerly existing wholly-owned subsidiary Neil Thall Associates,
Inc., a Georgia corporation ("NTA") that was merged with and into RIS, with use
of Underlying Technology (as defined below); and (c) the DFM has been further
developed by RIS with the support and assistance of HNC and use of Underlying
Technology (as defined below). The parties further acknowledge and agree that:
(a) RIS owns the DFM, subject to HNC's retained ownership of the Underlying
Technology (as defined below); (b) HNC shall retain ownership of the Underlying
Technology and all Intellectual Property Rights associated therewith; and (c)
Retek is hereby granted by HNC a perpetual, non-exclusive, irrevocable,
worldwide, royalty-free license to (i) use the Underlying Technology to develop
products and services with functions and applications that are solely within the
Field of Use; and (ii) market, sell, license and distribute the Underlying
Technology as an embedded component of the DFM and other products and services
with functions and applications that are solely within the Field of Use. The
term "UNDERLYING TECHNOLOGY" means any software, technology, know-how,
proprietary techniques and other trade secrets that HNC provided to NTA or RIS
at any time prior to October 15, 1999 for the purpose of developing the DFM
and/or any prior version of the DFM. Retek acknowledges and agrees, on behalf of
itself and RIS, that HNC shall be entitled to freely use, develop, license,
sell, lease, market and commercially exploit any Underlying Technology in any
manner.
ARTICLE 4: ROYALTIES
In the event that HNC's grant, or Retek's exercise, of any of the
license rights set forth in this Agreement triggers an obligation on the part of
HNC or any of its affiliates to pay any royalty or other payment to a third
party by virtue of any agreement or fact existing on or before the Effective
Date, then Retek shall be responsible for the payment of such royalties or other
payments in full and shall indemnify HNC against all such royalties and other
payments.
ARTICLE 5: WARRANTY DISCLAIMER
THE LICENSED TECHNOLOGY IS PROVIDED ON AN "AS IS" BASIS WITHOUT
WARRANTY OF ANY KIND AND HNC AND ITS SUPPLIERS HEREBY DISCLAIM ALL WARRANTIES,
WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED
WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT AND FITNESS FOR PARTICULAR
PURPOSE. HNC DOES NOT WARRANT THAT THE LICENSED TECHNOLOGY IS ERROR-FREE OR THAT
IT
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WILL MEET RETEK'S REQUIREMENTS OR THAT THE OPERATION OF THE LICENSED TECHNOLOGY
WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT ERRORS IN THE LICENSED TECHNOLOGY
OR NONCONFORMITY TO ITS DOCUMENTATION CAN OR WILL BE CORRECTED.
ARTICLE 6: CONFIDENTIAL INFORMATION
6.1 DEFINITION. "CONFIDENTIAL INFORMATION" means confidential and
proprietary information of HNC and its affiliates ("DISCLOSING PARTY") that is
disclosed to Retek and its affiliates (collectively, "RECEIVING PARTY") which,
in the case of written information, is marked "confidential" or "proprietary"
and which, in the case of information disclosed orally, is identified at the
time of the disclosure as confidential and proprietary and will be summarized
and confirmed in writing as such by the Disclosing Party within thirty (30)
calendar days of the disclosure. Confidential Information shall not include
information that: (i) is now or subsequently becomes generally available to the
public through no fault or breach of the Receiving Party; (ii) is independently
developed by the Receiving Party after the Effective Date without the use of any
Confidential Information of Disclosing Party; or (iii) the Receiving Party
rightfully obtains from a third party who has the right to transfer or disclose
it. Notwithstanding anything herein to the contrary, each party acknowledges
that all of the Licensed Technology (in any form) shall be deemed "Confidential
Information" of HNC for all purposes of this Agreement, whether or not it is so
marked or designated by HNC.
6.2 NONDISCLOSURE. The Receiving Party shall not disclose, publish, or
disseminate the Confidential Information of the Disclosing Party to anyone other
than those of such Receiving Party's employees and consultants with a need to
know, or as may by required by legal process, and the Receiving Party agrees to
use the same degree of care that it takes to hold in confidence its own most
valuable proprietary information, but not less than reasonable care, to prevent
any unauthorized use, disclosure, publication, or dissemination of the
Disclosing Party's Confidential Information. The Receiving Party agrees to
accept and use the Disclosing Party's Confidential Information only for the
purpose of carrying out its authorized activities under this Agreement. In the
event a Receiving Party is required to disclose Disclosing Party's Confidential
Information by an order of a court or governmental agency, then the Receiving
Party shall first give written notice to the Disclosing Party to allow the
Disclosing Party to make a reasonable effort to obtain a protective order or
other confidential treatment for the Confidential Information.
ARTICLE 7: INJUNCTIVE RELIEF
Retek acknowledges that any breach of its obligations under this
Agreement with respect to the Licensed Technology, HNC's Intellectual Property
Rights or HNC's Confidential Information or any failure by Retek to use Licensed
Technology strictly in accordance with the license rights granted to Retek under
Section 2.1 of this Agreement and the additional restrictions contained in
Section 2.2 of this Agreement will cause HNC irreparable injury for which there
are inadequate remedies at law, and therefore, HNC will be entitled to equitable
relief (including but not limited to injunctive relief and the remedy of
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<PAGE> 7
specific performance) in addition to all other rights and remedies provided by
this Agreement or available at law.
ARTICLE 8: INDEMNITY
Retek will be solely responsible for any commercial or legal liability
that may arise as a result of Retek's exercise of any of the license rights
granted by HNC to Retek under this Agreement, and Retek shall defend, indemnify,
and hold HNC harmless from and against any and all suits, claims, proceedings,
judgments, awards, damages, loss, liability, cost and expenses (including
without limitation reasonable attorney's fees and other related costs) that are
incurred or suffered by HNC or any of its affiliates, directors, officers,
employees, or agents to the extent they arise or result, directly or indirectly,
from (i) Retek's exercise of any license or other rights granted to Retek under
this Agreement; or (ii) the conduct of Retek's business directly or through any
affiliate of Retek.
ARTICLE 9: EXCLUSION OF DAMAGES; LIMITATION OF LIABILITY
(a) IN NO EVENT SHALL HNC BE LIABLE TO RETEK OR TO ANY THIRD PARTY FOR
ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING WITHOUT
LIMITATION LOSS OF USE, DATA, BUSINESS OR PROFITS) ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR THE USE, OPERATION OR PERFORMANCE OF ANY OF
THE LICENSED TECHNOLOGY, WHETHER SUCH LIABILITY ARISES FROM ANY CLAIM BASED UPON
CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE), PRODUCT LIABILITY OR OTHERWISE,
AND WHETHER OR NOT HNC HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS OR
DAMAGE.
(b) IN NO EVENT SHALL HNC'S AGGREGATE CUMULATIVE TOTAL LIABILITY UNDER
THIS AGREEMENT EXCEED $10,000.
(c) THIS SECTION IS A MATERIAL INDUCEMENT AND CONDITION TO HNC FOR
ENTERING INTO THIS AGREEMENT.
ARTICLE 10: TERM AND TERMINATION
10.1 TERM. This Agreement will commence on the Effective Date and will
remain in full force and effect thereafter unless terminated in accordance with
the terms of this Agreement.
10.2 MATERIAL BREACH.
(a) Subject to the provisions of Section 10.2(b), HNC shall have the
right to immediately terminate this Agreement and all licenses granted by HNC
hereunder upon written notice to Retek if Retek breaches any material term or
condition of this Agreement and fails to
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<PAGE> 8
fully cure such breach within thirty (30) days after receiving written notice of
such breach from HNC.
(b) Notwithstanding the foregoing provisions of Section 10.2(a), and in
addition to HNC's rights under Section 10.2(a), HNC shall have the right to
immediately terminate this Agreement and all licenses granted by HNC hereunder
upon written notice to Retek if Retek breaches any of its obligations under
Section 2.1 or Section 2.2 of this Agreement and fails to fully cure such breach
within four (4) business days after receiving written notice of such breach from
HNC.
10.3 INSOLVENCY. Either party shall have the right to terminate this
Agreement immediately upon notice to the other party if the other party: (a)
becomes the subject of a voluntary petition in bankruptcy or any voluntary
proceeding relating to insolvency, receivership, liquidation, or composition for
the benefit of creditors; or (b) becomes the subject of an involuntary petition
in bankruptcy or any involuntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors, if such
petition or proceeding is not dismissed within sixty (60) days of filing.
10.4 CERTAIN OTHER EVENTS OF TERMINATION.
(a) Upon the occurrence of (i) any breach or violation by Retek of its
obligations under Section 5.5 (Certain Post-Distribution Transactions) of the
Separation Agreement; or (ii) the occurrence of any event that would trigger an
indemnification obligation of Retek under Section 5.5 of the Separation
Agreement, HNC shall be entitled to immediately terminate this Agreement and all
Retek's rights and licenses hereunder upon giving written notice to Retek.
(b) Upon the occurrence of any Change of Control (as defined below)
this Agreement and all Retek's rights and licenses hereunder shall automatically
terminate unless, prior to the occurrence of such Change of Control, HNC has
consented to such Change of Control in a writing executed by an officer of HNC;
provided that HNC will not unreasonably withhold its consent to the consummation
of a Change of Control. For purposes of the preceding sentence, HNC will be
deemed to have reasonably withheld its consent to a Change of Control if any
person or entity who would acquire direct or indirect control (as defined below)
of Retek pursuant to such Change of Control then conducts a business that is
directly or indirectly competitive with a business then conducted by HNC or any
of its affiliates. As used herein, the term "CHANGE OF CONTROL" means: (i) a
transaction or series of related transactions that results in the sale or other
disposition of all or substantially all of Retek's assets; or (ii) a merger or
consolidation in which Retek is not the surviving corporation or in which, if
Retek is the surviving corporation, the shareholders of Retek immediately prior
to the consummation of such merger or consolidation do not, immediately after
consummation of such merger or consolidation, own stock or other securities of
Retek that possess a majority of the voting power of all Retek's outstanding
stock and other securities and the power to elect a majority of the members of
Retek's board of directors; or (iii) a transaction or series of related
transactions (which may include without limitation a tender offer for Retek's
stock or the issuance, sale or
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exchange of stock of Retek) if the shareholders of Retek immediately prior to
the initial such transaction do not, immediately after consummation of such
transaction or any of such related transactions, own stock or other securities
of Retek that possess a majority of the voting power of all Retek's outstanding
stock and other securities and the power to elect a majority of the members of
Retek's board of directors. ""As used herein, the term "CONTROL" (including,
with correlative meanings, the terms, "CONTROLS" "CONTROLLING", "CONTROLLED BY"
or "UNDER COMMON CONTROL WITH") with respect to a designated person means the
possession, directly or indirectly, of the power to vote a majority of the
securities having voting power for the election of directors (or other persons
acting in similar capacities) of such person or otherwise to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities, by contract or otherwise.
10.5 CESSATION OF BUSINESS. In the event Retek winds up, dissolves or
otherwise ceases doing business, HNC shall be entitled to terminate this
Agreement immediately upon written notice to Retek.
10.6 EFFECT OF TERMINATION. Upon termination of this Agreement: (a) the
rights and licenses granted to Retek pursuant to this Agreement will
automatically terminate, and (b) Retek shall, within thirty (30) days, ship to
HNC or destroy (including purging from any system or storage media) all items
all Licensed Technology and other Confidential Information in its possession or
control, and an officer of Retek shall certify in writing that Retek as complied
with the provisions of this Section. However, termination of this Agreement will
not terminate customer software licenses validly granted by Retek in accordance
with this Agreement prior to the effective date of termination of this
Agreement.
10.7 NONEXCLUSIVE REMEDY. Termination of this Agreement by either party
will be a nonexclusive remedy for breach and will be without prejudice to any
other right or remedy of such party.
10.8 NO DAMAGES FOR TERMINATION. NEITHER PARTY WILL BE LIABLE TO THE
OTHER FOR DAMAGES OF ANY KIND, INCLUDING WITHOUT LIMITATION INCIDENTAL OR
CONSEQUENTIAL DAMAGES, DAMAGES FOR THE LOSS OF GOODWILL, PROSPECTIVE PROFITS OR
ANTICIPATED INCOME, OR DAMAGES RESULTING FROM ANY EXPENDITURES, INVESTMENTS,
LEASES OR COMMITMENTS MADE BY EITHER PARTY ON ACCOUNT OF THE TERMINATION OR
EXPIRATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS.
10.9 SURVIVAL. The rights and obligations of the parties under the
following Articles of this Agreement shall survive any termination of this
Agreement: Article 3 (Ownership), Article 4 (Royalties), Article 5 (Warranty
Disclaimer) Article 6 (Confidentiality), Article 7 (Injunctive Relief), Article
8 (Indemnity), Article 9 (Exclusion of Damages), Article 10 (Term and
Termination) and Article 11 (General Provisions).
9
<PAGE> 10
ARTICLE 11: GENERAL PROVISIONS
11.1 GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the internal laws of the State of California, without reference
to its conflict of law rules.
11.2 COMPLIANCE WITH LAWS. Retek agrees to comply in all material
respects with all applicable laws, rules, and regulations in connection with its
activities under this Agreement, including without limitation, any applicable
export controls imposed by the U.S. Export Administration Act of 1978, as
amended (the "ACT") and the regulations promulgated under the Act.
11.3 ASSIGNMENT. Retek may not assign this Agreement or assign its
license rights hereunder in whole or in part without HNC's prior written
consent. Any attempt to assign this Agreement or assign or sublicense Retek's
license rights hereunder without such consent will be void and of no effect. For
purposes of this Agreement, any Change of Control (as defined in Section
10.4(b)) shall be governed by the provisions of Section 10.4(b) and not the
provisions of this Section 11.3. Subject to the terms of this Section 11.3, this
Agreement will bind and inure to the benefit of the parties and their respective
successors and permitted assigns.
11.4 ATTORNEYS' FEES. In the event that any action or proceeding is
brought in connection with this Agreement, the prevailing party shall be
entitled to recover its costs and reasonable attorneys' fees following a final
judgment.
11.5 SEVERABILITY. If for any reason a court of competent jurisdiction
finds any provision of this Agreement invalid or unenforceable, then that
provision of the Agreement will not be voided, but rather will be enforced to
the maximum extent legally permissible and the other provisions of this
Agreement will remain in full force and effect.
11.6 INDEPENDENT CONTRACTOR. The parties to this Agreement are
independent contractors and this Agreement will not establish any relationship
of partnership, joint venture, employment, franchise, or agency between the
parties. Neither party will have the power to bind the other or incur
obligations on the other's behalf without the other's prior written consent.
11.7 NOTICES. All notices required or permitted under this Agreement
will be in writing and delivered by confirmed facsimile transmission, by courier
or overnight delivery service, or by certified mail, and in each instance will
be deemed given upon receipt. All communications to a party will be sent to the
address of the party set forth in the preamble above or to such other address as
may be specified by such party to the other in accordance with this Section.
Either party may change its address for notices under this Agreement by giving
written notice to the other party by the means specified in this Section.
10
<PAGE> 11
11.8 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which will be deemed an original, but both of which together will constitute
one and the same instrument.
11.9 ENTIRE AGREEMENT. This Agreement, together with the Separation
Agreement, constitutes the complete and exclusive agreement between the parties
with respect to the subject matter hereof, superseding and replacing any and all
prior and contemporaneous agreements, communications, and understandings (both
written and oral) regarding such subject matter.
11.10 MODIFICATION. No modification to this Agreement, nor any waiver
of any rights, shall be effective unless consented to in writing and the waiver
of any breach or default shall not constitute a waiver of any other right or of
any subsequent breach or default.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the Effective Date by their duly authorized representatives.
HNC SOFTWARE INC. RETEK INC.
By: ___________________________ By: ___________________________________
Name: _________________________ Name: _________________________________
Title: ________________________ Title: ________________________________
SOLELY FOR PURPOSES OF SECTION 3.3
RETEK INFORMATION SYSTEMS, INC.
By: __________________________________
Name: ________________________________
Title: _______________________________
l
[SIGNATURE PAGE TO TECHNOLOGY LICENSE AGREEMENT]
11
<PAGE> 12
EXHIBIT A
TO
TECHNOLOGY LICENSE AGREEMENT BETWEEN HNC SOFTWARE INC. AND RETEK INC.
LICENSED SOFTWARE
The Licensed Software consists of the following items of software:
1) SELECTPROFILE
The SelectProfile software delivered to Retek on or about November
1998, which embodies HNC context vector technology and which includes
modules for:
(a) context vector learning: representing transactional data with high
dimensional vectors ("CVs"), and learning the relationships between
items of transactional data.
(b) context vector profiling of transaction streams: representing
consumers, merchants, and products, or other entities using CVs, based
on their respective aggregate transactions.
(c) context vector comparison: comparing CV's with each other to
determine similarity, including but not limited to determining
similarities between consumers, merchants, and/or products.
(d) context vector clustering: grouping CV's clusters, and creating
summary vectors to represent the clusters, including but not limited to
the creation of merchant clusters, consumer clusters, and/or product
clusters.
(e) fast vector storage and retrieval: efficient storage of CVs and
high speed retrieval of CVs.
2) MARKDOWN MANAGEMENT
The Markdown Management software delivered to Retek on or about
February 15th, 1999, which embodies dynamic programming technology for
optimizing retail pricing to maximize profit.
3) MULTI-ECHELON INVENTORY MANAGEMENT
The Multi-Echelon Inventory Management software delivered to Retek on
or about March 15th, 1999 which embodies re-enforcement learning
technology to optimize retail inventory across multiple stores and
multiple distribution centers.
12
<PAGE> 1
EXHIBIT 2.7
FORM OF STOCK CONTRIBUTION AGREEMENT
This Stock Contribution Agreement (this "AGREEMENT") is made and
entered into as of _____________ ___, 1999 (the "EFFECTIVE DATE") by and between
HNC Software Inc., a Delaware corporation ("HNC") and Retek Inc., a Delaware
corporation ("RETEK").
R E C I T A L S
A. HNC, Retek and Retek Information Systems, Inc., a Delaware
corporation ("RIS") have entered into a certain Separation Agreement dated as of
_________, 1999 (the "SEPARATION AGREEMENT") pursuant to which the parties have
made certain agreements providing for the separation of the businesses of Retek
and RIS from HNC.
B. The Separation Agreement provides that, at the closing of the
Separation Agreement, HNC will contribute and transfer to Retek all of the
outstanding shares of RIS owned by HNC and this Agreement is being entered into
pursuant to the Separation Agreement to document such contribution and transfer.
NOW THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereby agree as follows:
1. CONTRIBUTION OF SHARES. Pursuant to the Separation Agreement, and
subject to the terms and conditions of this Agreement, as of the Effective Date,
HNC hereby contributes, assigns and transfers to Retek, and Retek hereby accepts
from HNC, one hundred (100) shares of Common Stock, par value $0.001 per share,
of RIS (the "CONTRIBUTED SHARES"). Accordingly HNC is hereby delivering to
Retek: (i) a stock certificate representing the Contributed Shares, and (ii) a
stock power and assignment separate from certificate in the form attached hereto
as Exhibit A, duly endorsed, transferring the Contributed Shares to Retek.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF RETEK. In
consideration of the contribution of the Contributed Shares, Retek represents
and warrants to HNC, and agrees with HNC as follows:
2.1 COMPLIANCE WITH SECURITIES LAWS. Retek understands and
acknowledges that the Contributed Shares have not been registered with the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended (the "1933 ACT") and have not been registered or qualified under the
securities laws of any state, but instead were issued and are being transferred
hereunder under exemptions from such registration and/or qualification
requirements which impose certain restrictions on Retek's ability to transfer
the Contributed Shares. Retek understands and acknowledges that HNC is an
"affiliate" of RIS within the meaning of Rule 144 promulgated under the 1933 Act
("RULE 144") and Retek has been advised by its counsel of the restrictions on
transfer of the Contributed Shares under Rule 144.
2.2. INVESTMENT INTENT. Retek is acquiring the Contributed
Shares for its own account, for investment purposes only and not with a view to,
or for sale in connection with, any distribution of the Contributed Shares
within the meaning of the 1933 Act. Purchaser has no present intention of
selling or otherwise disposing of all or any portion of the Shares and no one
other than Purchaser has any beneficial ownership of any of the Shares.
1
<PAGE> 2
2.3 ACCESS TO INFORMATION. Retek is an accredited investor and
has had access to all information regarding RIS and its present and prospective
business, assets, liabilities and financial condition that Retek reasonably
considers important in making the decision to purchase the Shares, and Purchaser
has had ample opportunity to ask questions of RIS's representatives concerning
such matters and this investment.
2.4 LEGENDS. Retek understands and agrees that RIS will place
the legend set forth below on any stock certificate(s) evidencing the
Contributed Shares, together with any other legends that may be required by
state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES
ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
2.5 STOP-TRANSFER INSTRUCTIONS. Retek agrees that, to ensure
compliance with the restrictions imposed by this Agreement and applicable
securities laws, RIS may issue appropriate "stop-transfer" instructions to its
transfer agent, if any, and if RIS transfers its own securities, it may make
appropriate notations to the same effect in its own records.
3. GENERAL PROVISIONS.
3.1 ASSIGNMENTS; SUCCESSORS AND ASSIGNS. Any assignment of
rights and obligations by any party to this Agreement requires the prior written
consent of the other party.
3.2 GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of California, without giving
effect to that body of laws pertaining to conflict of laws.
3.3 FURTHER ASSURANCES. The parties agree to execute such
further documents and instruments and to take such further actions as may be
reasonably necessary to carry out the purposes and intent of this Agreement.
3.4 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered will be deemed an
original, and all of which together shall constitute one and the same agreement.
This Agreement may be executed and delivered by facsimile.
3.5 AMENDMENT AND WAIVERS. No amendment, modification or
waiver of any provision of this Agreement will be enforceable unless set forth
in a writing signed by the party against which enforcement is sought. Any
amendment effected in accordance with this section will be binding upon all
parties hereto and each of their respective successors and assigns.
3.6 ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement and understanding of the
parties with respect to the subject matter of this Agreement, and supersede all
prior understandings and agreements, whether oral or written, between or among
the parties hereto with respect to the specific subject matter hereof.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
HNC SOFTWARE INC. RETEK INC.
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _______________________ Title: _______________________
[SIGNATURE PAGE TO STOCK CONTRIBUTION AGREEMENT]
3
<PAGE> 4
STOCK POWER SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, the undersigned stockholder of Retek Information
Systems, Inc., a Delaware corporation (the "COMPANY"), hereby assigns and
transfers to Retek Inc., the number of shares specified below of the Common
Stock of the Company standing in such stockholder's name on the books of the
Company represented by the certificate(s) specified below, and hereby
irrevocably constitutes and appoints the Secretary of the Company as
attorney-in-fact, with full power to transfer such stock on the books of the
Company with full power of substitution in the premises.
Certificate No. No. of Shares to be Transferred Date of Certificate
- --------------- ------------------------------- -------------------
C-1 One Hundred (100) December 23, 1996
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
Signature(s), exactly as the name(s) Name(s), exactly as it (they)
appears on the Stock Certificate(s). appears on the Stock Certificate(s)
(please print or type).
If the stockholder is a corporation, partnership, limited liability
company, trust or other entity, please fill in the title of the authorized
person signing on behalf of the shareholder:
HNC SOFTWARE INC.
By:
---------------------------------
Signature
- --------------------------------------
Title of Authorized Person Signing
4
<PAGE> 1
EXHIBIT 3.4
FORM OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RETEK INC.
RETEK INC., a Delaware corporation, hereby certifies as follows:
1. The name of the corporation is Retek Inc. (the "Corporation"). The
date of filing of its original Certificate of Incorporation with the Secretary
of State of the State of Delaware was August 30, 1999. The original name of the
Corporation was Retek Inc.
2. This Amended and Restated Certificate of Incorporation amends and
restates the provisions of the Certificate of Incorporation of the Corporation
and was duly adopted in accordance with the provisions of Sections 228, 242 and
245 of the General Corporation Law of the State of Delaware.
3. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
ARTICLE I
NAME
SECTION 1.01. Name. The name of the corporation is Retek Inc. (the
"Corporation").
ARTICLE II
REGISTERED AGENT
SECTION 2.01. Agent. The address of the Corporation's registered office
in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of the Corporation's
registered agent at such address is The Corporation Trust Company.
ARTICLE III
PURPOSE
SECTION 3.01. Purpose. The purpose of the Corporation is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended.
<PAGE> 2
2
ARTICLE IV
CAPITAL STOCK
SECTION 4.01. Capital Stock. The total number of shares of all classes
of capital stock that the Corporation shall have the authority to issue is
155,000,000 shares, of which (i) 150,000,000 shares shall be common stock, par
value $0.01 per share ("Common Stock"), and (ii) 5,000,000 shares shall be
preferred stock, par value $0.01 per share ("Preferred Stock").
Upon the effective date of the filing of this Amended and Restated
Certificate of Incorporation, each share of the Corporation's outstanding
capital stock shall be converted and reconstituted into 40,000 shares of Common
Stock (the "Stock Split"). No further adjustment of any preference or price set
forth in this Article IV shall be made as a result of this Stock Split.
SECTION 4.02. Common Stock. Each holder of Common Stock shall have one
vote on each matter submitted to a vote at a meeting of stockholders, including
the election of directors, for each share of Common Stock held of record by such
holder as of the record date for such meeting. Except as otherwise required by
law or provided in any resolution adopted by the Corporation's Board of
Directors (the "Board of Directors") with respect to any series of Preferred
Stock, the holders of shares of Common Stock will possess all voting power, and
holders of shares of Preferred Stock shall not be entitled to receive notice of
any meeting of stockholders at which they are not entitled to vote. No provision
herein should be interpreted as providing for cumulative voting in the election
of directors.
SECTION 4.03. Dividends and Distributions. Subject to any preferential
rights of any outstanding series of Preferred Stock created by the Board of
Directors from time to time, when, as and if dividends or distributions are
declared on outstanding shares of Common Stock, whether payable in cash, in
property or in securities of the Corporation, each holder of outstanding shares
of Common Stock shall be entitled to share ratably in such dividends and
distributions in proportion to the number of shares of Common Stock held by such
holder.
SECTION 4.04. Dissolution. Subject to any preferential rights of any
outstanding series of Preferred Stock created by the Board of Directors from
time to time, upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, each holder of outstanding shares
of Common Stock shall be entitled to share ratably in the assets of the
Corporation to be distributed among the holders of shares of Common Stock in
proportion to the number of shares of Common Stock held by such holder.
SECTION 4.05. Preemptive Rights. The holders of shares of Common Stock
shall have no preemptive or preferential rights of subscription to any shares of
any class of capital stock of the Corporation or any securities convertible into
or exchangeable for shares of any class of capital stock of the Corporation.
SECTION 4.06. Preferred Stock. Subject to the terms of any contract to
which the Corporation is bound, the Preferred Stock may be issued, if so
determined by the Board of Directors, either as a class without series or from
time to time in one or more series and with such designation for such class or
such series adopted by the Board of Directors. The Board
<PAGE> 3
3
of Directors in any such resolution or resolutions is expressly authorized to
state and express for such class or each such series:
(a) Voting rights, if any, including, without limitation, the authority
to confer multiple votes per share, voting rights as to specified matters or
issues or, subject to the provisions of this Amended and Restated Certificate of
Incorporation, voting rights to be exercised either together with the holders of
Common Stock as a single class, or independently as a separate class;
(b) The rate per annum and the times at and conditions upon which the
holders of shares of such class or series shall be entitled to receive
dividends, the conditions and dates upon which such dividends shall be payable
and whether such dividends shall be cumulative or noncumulative, and, if
cumulative, the terms upon which such dividends shall be cumulative;
(c) Redemption, repurchase, retirement and sinking fund rights,
preferences and limitations, if any, the amount payable on shares of such class
or series in the event of such redemption, repurchase or retirement, the terms
and conditions of any sinking fund, the manner of creating such fund or funds
and whether any of the foregoing shall be cumulative or noncumulative;
(d) The rights to which the holders of the shares of such class or
series shall be entitled upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(e) The terms, if any, upon which the shares of such class or series
shall be convertible into or exchangeable for shares of stock of any other class
or classes or of any other series of the same or any other class or classes,
including the price or prices or the rate or rates of conversion or exchange and
the terms of adjustment, if any;
(f) Any other designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
thereof insofar as they are not inconsistent with the provisions of this Amended
and Restated Certificate of Incorporation (as it may be amended from time to
time) and to the full extent now or hereafter permitted by the laws of the State
of Delaware; and
(g) All shares of Preferred Stock, if issued as a class without series,
or all shares of the Preferred Stock of any one series, if issued in series,
shall be identical to each other in all respects and shall entitle the holders
thereof to the same rights and privileges, except that shares of any one series
issued at different times may differ as to the dates from which dividends
thereon, if cumulative, shall be cumulative.
ARTICLE V
BOARD OF DIRECTORS
SECTION 5.01. Business. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors, which may
exercise all the powers of the Corporation and do all such lawful acts and
things that are not conferred upon or
<PAGE> 4
4
reserved to the stockholders or others by law, by this Amended and Restated
Certificate of Incorporation, by the Bylaws of the Corporation or by any
contract to which the Corporation is bound.
SECTION 5.02. Election. Election of directors need not be by written
ballot unless the Bylaws of the Corporation so provide.
SECTION 5.03. General. The following provisions are inserted for the
management of the business and for the conduct of the affairs of the
Corporation, and for further definition, limitation and regulation of the powers
of its directors and stockholders:
(a) The Bylaws of the Corporation may be altered, amended or repealed
and new Bylaws may be adopted by the affirmative vote of directors constituting
not less than a majority of the total number of directors which the Corporation
would have if there were no vacancies on the Board of Directors.
(b) Prior to the first date on which HNC Software Inc., a Delaware
corporation ("HNC"), and/or its affiliates collectively cease to beneficially
own an aggregate of at least a majority of the then outstanding shares of Common
Stock (the "Trigger Date"), the Board of Directors shall consist of seven (7)
directors. After the Trigger Date, and subject to the rights, if any, of holders
of Preferred Stock the Board of Directors shall consist of not less than three
(3) and not more than ten (10) directors, the exact number of directors to be
determined as set forth in, or in the manner provided in, the Bylaws of the
Corporation. The directors, other than those (if any) who may be elected by the
holders of Preferred Stock voting as a separate class, shall be divided, with
respect to the time they severally hold office, into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as
possible, of one-third of the total number of directors constituting the entire
Board of Directors. The term of the initial Class I directors shall terminate on
the date of the 2000 annual meeting of stockholders; the term of the initial
Class II directors shall terminate on the date of the 2001 annual meeting of
stockholders; and the term of the initial Class III directors shall terminate on
the date of the 2002 annual meeting of stockholders. At each annual meeting of
stockholders, beginning with the 2000 annual meeting of stockholders, successors
to the class of directors whose terms expire at that annual meeting of
stockholders shall be elected for a three year term. The initial Class III
directors shall be Ward Carey, Charles H. Gaylord, Jr. and Alex W. Hart. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting of stockholders for the year in which his or her
term expires and until his or her successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification or
removal from office. Subject to the rights, if any, of the holders of Preferred
Stock or the terms of any contract to which the Corporation is bound, any
vacancy on the Board of Directors that results from an increase in the number of
directors and any other vacancy occurring on the Board of Directors, howsoever
resulting, may be filled only by a majority of the remaining members of the
Board of Directors, though less than a quorum, or by the sole remaining
director, and except as otherwise provided by law or the terms of any contract
to which the Corporation is bound, any such vacancy may not be filled by the
stockholders of the Corporation; provided, however, that notwithstanding the
foregoing, for so
<PAGE> 5
5
long as HNC has the right to nominate persons for election to the Board of
Directors of the Corporation pursuant to the Corporate Rights Agreement
referenced in Section 13.01 hereof, as such agreement may be amended from time
to time (such nominated persons being hereinafter called "HNC Designees"), if a
vacancy on the Corporation's Board of Directors is caused by the death,
disability, retirement, resignation or removal for cause or otherwise of an HNC
Designee, then HNC shall have the sole right to nominate an individual to fill
such vacancy on the Corporation's Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been fully elected and qualified.
(c) Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Amended and Restated Certificate of Incorporation (as it may be
amended from time to time) or the resolution or resolutions adopted by the Board
of Directors pursuant to Section 4.06 hereof, and such directors so elected
shall not be divided into classes pursuant to Section 5.03(b) unless expressly
provided by such terms.
(d) Advance notice of stockholder nominations for the election of
directors and of the proposal of business by stockholders shall be given in the
manner provided in the Bylaws of the Corporation, as amended and in effect from
time to time.
(e) Prior to the Trigger Date, any or all of the Directors may be
removed with or without cause at any time by either (i) the vote of the holders
of a majority of the outstanding shares of Common Stock then entitled to vote at
an election of Directors, or (ii) by written consent of the holders of the
Common Stock pursuant to Section 6.01 hereof. After the Trigger Date, any or all
of the Directors may be removed only with cause at any time by vote of the
holders of a majority of the Common Stock then entitled to vote at an election
of Directors.
(f) Notwithstanding anything contained in this Amended and Restated
Certificate of Incorporation to the contrary, after the Trigger Date, the
affirmative vote of the holders of at least 80% of the voting power of all
Voting Stock then outstanding, voting together as a single class, shall be
required to amend, repeal or adopt any provision inconsistent with this Article
V.
ARTICLE VI
STOCKHOLDER ACTION
SECTION 6.01. Action By Written Consent. Prior to the Trigger Date, any
corporate action required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting, without prior notice, if
a consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of the outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the Corporation (either by hand or by certified or
registered mail, return
<PAGE> 6
6
receipt requested) at its registered office in the State of Delaware or its
principal place of business, or to an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded; provided, however, that effective as of and after the Trigger Date,
unless otherwise required by applicable law, any corporate action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken only at a duly called annual or special meeting of stockholders and may
not be taken by written consent in lieu of such a meeting.
SECTION 6.02. Special Meetings. Effective as of and after the Trigger
Date, unless otherwise prescribed by law and subject to any preferential rights
of any outstanding series of Preferred Stock created by the Board of Directors
from time to time, special meetings of the stockholders of the Corporation for
any purpose or purposes may be called at any time by the Chairman of the Board
of Directors, the President or, at the request in writing of a majority of the
members of the Board of Directors, any officer of the Corporation, and effective
as of and after the Trigger Date, any power of the stockholders of the
Corporation to call a special meeting is specifically denied, provided, however,
that prior to the Trigger Date, the Corporation shall call a special meeting of
the stockholders of the Corporation promptly upon the request of HNC or any of
its affiliates (other than the Corporation or any subsidiary of the
Corporation), in each case if such entity is a stockholder of the Corporation.
SECTION 6.03. Amendment. Notwithstanding anything contained in this
Amended and Restated Certificate of Incorporation to the contrary, after the
Trigger Date, the affirmative vote of the holders of at least 80% of the voting
power of all Voting Stock then outstanding, voting together as a single class,
shall be required to amend, repeal or adopt any provision inconsistent with this
Article VI.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Indemnification. (a) The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
<PAGE> 7
7
(b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a present or former director, officer, employee
or agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 7.01(a) and (b)
hereof, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under Section 7.01(a) and (b) hereof (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the present or former
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Section 7.01(a) and (b)
hereof. Such determination shall be made with respect to a person who is a
director or officer at the time of such determination, (i) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (ii) by a committee of such directors designated
by majority vote of such directors, even though less than quorum, or (iii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (iv) by the stockholders of the
Corporation.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation pursuant to this Article VII. Such expenses (including
attorneys' fees) incurred by former directors and officers or other employees
and agents may be so paid upon such terms and conditions, if any, as the
Corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, other Sections of this Article VII shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
<PAGE> 8
8
(g) For purposes of this Article VII, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article VII with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(h) For purposes of this Article VII, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves service by, such director, officer, employee or
agent with respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
VII.
(i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 7.02. Insurance for Indemnification. The Corporation shall have
the power to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation has the power to indemnify such person
against such liability under this Article VII or the provisions of Section 145
of the General Corporation Law of the State of Delaware.
ARTICLE VIII
BYLAWS
SECTION 8.01. Amendment of Bylaws. The Bylaws of the Corporation may be
altered, amended or repealed and new Bylaws may be adopted (i) at any annual or
special meeting of stockholders or, to the extent permitted hereby, the written
consent of the stockholders, by the affirmative vote of the holders of a
majority of the voting power of the outstanding Common Stock entitled to vote on
that matter, provided, however, that any proposed alteration, amendment or
repeal of, or the adoption of any Bylaw inconsistent with, Sections 2.02, 2.04,
2.11, 3.02, 3.04 or 3.05 of the Bylaws, by the stockholders shall require the
affirmative vote of the holders of at least 80% of the voting power of all
Common Stock then
<PAGE> 9
9
outstanding, voting together as a single class, or (ii) by the affirmative vote
of directors constituting not less than a majority of the total number of
directors which the Corporation would have if there were no vacancies.
Notwithstanding anything contained in this Amended and Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the outstanding shares of Common Stock shall be
required to amend, repeal or adopt any provision inconsistent with this Article
VIII.
ARTICLE IX
LIMITATION ON LIABILITY OF DIRECTORS
SECTION 9.01. Limitation on Liability. A director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
ARTICLE X
CORPORATE OPPORTUNITIES
SECTION 10.01. Purpose. In anticipation that the Corporation will cease
to be a wholly-owned subsidiary of HNC, but that HNC will remain a substantial
stockholder of the Corporation, and in anticipation that the Corporation and HNC
may engage in the same or similar activities or lines of business and have an
interest in the same areas of corporate opportunities, and in recognition of the
benefits to be derived by the Corporation through its continued contractual,
corporate and business relations with HNC (including possible service of
officers and directors of HNC as officers and/or directors of the Corporation),
the provisions of this Article are set forth to regulate and define the conduct
of certain affairs of the Corporation as they may involve HNC and its officers
and directors, and the powers, rights, duties and liabilities of the Corporation
and its officers, directors and stockholders in connection therewith.
SECTION 10.02. No Duty to Refrain. HNC shall have no duty to refrain
from engaging in the same or similar activities or lines of business as the
Corporation, and neither HNC nor any officer or director thereof (except as
provided in Section 10.03 below) shall be liable for breach of any fiduciary
duty by reason of any such activities of HNC. In the event that HNC acquires
knowledge of a potential transaction or matter which may be a corporate
opportunity for both HNC and the Corporation, HNC shall have no duty to
communicate or offer such corporate opportunity to the Corporation and shall not
be liable for breach of any fiduciary duty as a stockholder of the Corporation
by reason of the fact that HNC pursues or acquires such corporate opportunity
for itself, directs such corporate opportunity to another person, or does not
communicate information regarding such corporate opportunity to the Corporation.
SECTION 10.03. Corporate Opportunities. In the event that a director or
officer of the Corporation who is also a director or officer of HNC acquires
knowledge of a
<PAGE> 10
10
potential transaction or matter which may be a corporate opportunity for both
the Corporation and HNC, such director or officer of the Corporation shall have
fully satisfied and fulfilled the fiduciary duty of such director or officer to
the Corporation and its stockholders with respect to such corporate opportunity,
if such director or officer acts in a manner consistent with the following
policy: (i) A corporate opportunity offered to any person who is an officer of
the Corporation, and who is also a director but not an officer of HNC, shall
belong to the Corporation; (ii) a corporate opportunity offered to any person
who is a director but not an officer of the Corporation, and who is also a
director or officer of HNC shall belong to the Corporation if such opportunity
is expressly offered to such person in writing solely in his or her capacity as
a director of the Corporation, and otherwise shall belong to HNC; and (iii) a
corporate opportunity offered to any person who is an officer of both the
Corporation and HNC shall belong to the Corporation if such opportunity is
expressly offered to such person in writing solely in his or her capacity as an
officer of the Corporation, and otherwise shall belong to HNC.
SECTION 10.04. Successors. Any person purchasing or otherwise acquiring
any interest in shares of the capital stock of the Corporation shall be deemed
to have notice of and to have consented to the provisions of this Article.
SECTION 10.05. Definitions. For purposes of this Article only:
(a) A director of the Corporation who is Chairman of the Board of
Directors of the Corporation or of a committee thereof shall not be deemed to be
an officer of the Corporation by reason of holding such position (without regard
to whether such position is deemed an office of the Corporation under the Bylaws
of the Corporation), unless such person is a full-time employee of the
Corporation; and
(b) (1) The term "Corporation" shall mean the Corporation and all
corporations, partnerships, joint ventures, associations and other entities in
which the Corporation beneficially owns (directly or indirectly) 50% or more of
the outstanding voting stock, voting power, partnership interests or similar
voting interests, and (2) the term "HNC," for the purpose of this Article only,
shall mean HNC and all corporations, partnerships, joint ventures, associations
and other entities (other than the Corporation, defined in accordance with
clause (1) of this paragraph Section 10.05(b)) in which HNC beneficially owns
(directly or indirectly) 50% or more of the outstanding voting stock, voting
power, partnership interests or similar voting interests.
SECTION 10.06. Expiration. Notwithstanding anything in this Amended and
Restated Certificate of Incorporation to the contrary, (i) the foregoing
provisions of this Article shall expire on the date that HNC ceases to own
beneficially Common Stock representing at least 25% of the total voting power of
all classes of outstanding Common Stock of the Corporation and no person who is
a director or officer of the Corporation is also a director or officer of HNC;
and (ii) in addition to any vote of the stockholders required by this Amended
and Restated Certificate of Incorporation, until the time that HNC ceases to own
beneficially Common Stock representing at least 25% of the total voting power of
all classes of outstanding Common Stock of the Corporation, the affirmative vote
of the holders of more than 80% of the total voting power of all classes of
outstanding Common Stock of the Corporation shall be required to alter, amend or
repeal in a manner adverse to the interests of HNC, or adopt any provision
adverse to
<PAGE> 11
11
the interests of HNC and inconsistent with, any provision of this
Article. Neither the alteration, amendment or repeal of this Article nor the
adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with this Article shall eliminate or reduce the
effect of this Article in respect of any matter occurring, or any cause of
action, suit or claim that, but for this Article, would accrue or arise, prior
to such alteration, amendment, repeal or adoption.
ARTICLE XI
AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
SECTION 11.01. Amendment. Subject to any contract to which the
Corporation is bound, the Corporation reserves the right to amend, alter,
restate, change or repeal an provision contained in this Amended and Restated
Certificate of Incorporation, in the manner now or hereafter prescribed by the
laws of the State of Delaware, and all rights of the stockholders herein are
granted subject to this reservation.
ARTICLE XII
BUSINESS COMBINATIONS
SECTION 12.01. Applicability of Section 203. The Corporation shall not
be and hereby elects not to be governed by Section 203 of the General
Corporation Law of the State of Delaware, as in effect on the date this
provision becomes effective or as it may hereafter be amended ("Section 203"),
until such time as HNC (or any corporation or other entity into which HNC has
merged or consolidated in a statutory merger or consolidation) owns (as defined
by Section 203) less than fifteen percent (15%) of the Corporation's outstanding
voting stock (as defined in Section 203).
ARTICLE XIII
MISCELLANEOUS
SECTION 13.01. Contracts References. Whenever in this Amended and
Restated Certificate of Incorporation the phrase "any contract to which the
Corporation is bound" or a similar phrase is used, the reference therein to a
contract to which the Corporation is bound shall specifically include, without
limitation, that certain Separation Agreement entered into among the
Corporation, HNC and Retek Information Systems, Inc., as such may be amended
from time to time, and that certain Corporate Rights Agreement among the
Corporation, HNC and Retek Information Systems, Inc., as such may be amended
from time to time, and the contents of such contracts shall be deemed to have
been incorporated herein by reference.
<PAGE> 12
12
This Amended and Restated Certificate of Incorporation shall become
effective at 8:00 a.m. (Wilmington, Delaware time), November 23, 1999.
IN WITNESS WHEREOF, RETEK INC. has caused this certificate to be signed
by John Buchanan, its Chairman and Chief Executive Officer, and attested by
Gregory A. Effertz, its Secretary, on this twenty second day of November, 1999.
RETEK INC.
By:
----------------------------------
Name: John Buchanan
Title: Chairman and Chief
Executive Officer
ATTEST:
- ---------------------------------
Name: Gregory A. Effertz
Title: Secretary
<PAGE> 1
EXHIBIT 3.5
=========================
FORM OF BYLAWS
OF
RETEK INC.
=========================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I - OFFICES..............................................................................................1
SECTION 1.01. Registered Office...................................................................1
SECTION 1.02. Other Offices.......................................................................1
ARTICLE II - STOCKHOLDERS........................................................................................1
SECTION 2.01. Annual Meetings.....................................................................1
SECTION 2.02. Special Meetings....................................................................1
SECTION 2.03. Notice of Meetings..................................................................2
SECTION 2.04. Notice of Stockholder Business and Nominations......................................2
SECTION 2.05. Waiver of Notice....................................................................4
SECTION 2.06. Adjournments........................................................................5
SECTION 2.07. Quorum..............................................................................5
SECTION 2.08. Organization and Conduct of Business................................................5
SECTION 2.09. Proxies and Voting..................................................................5
SECTION 2.10. Inspectors of Election..............................................................6
SECTION 2.11. No Stockholder Action by Written Consent............................................6
ARTICLE III - BOARD OF DIRECTORS.................................................................................6
SECTION 3.01. General Powers......................................................................6
SECTION 3.02. Number and Term of Office...........................................................6
SECTION 3.03. Resignation.........................................................................7
SECTION 3.04. Removal.............................................................................7
SECTION 3.05. Vacancies...........................................................................7
SECTION 3.06. Meetings............................................................................8
SECTION 3.07. Directors' Consent in Lieu of Meeting...............................................9
SECTION 3.08. Action by Means of Telephone or Similar Communications Equipment....................9
SECTION 3.09. Compensation........................................................................9
SECTION 3.10. Reliance upon Books, Reports and Records............................................9
ARTICLE IV - COMMITTEES OF THE BOARD OF DIRECTORS................................................................9
SECTION 4.01. Committees of the Board of Directors................................................9
SECTION 4.02. Audit Committee....................................................................10
SECTION 4.03. Compensation Committee.............................................................10
SECTION 4.04. Rules and Procedures...............................................................10
SECTION 4.05. Application of Article.............................................................10
ARTICLE V - OFFICERS............................................................................................11
SECTION 5.01. Officers...........................................................................11
SECTION 5.02. Chairman of the Board of Directors.................................................11
SECTION 5.03. Chief Executive Officer............................................................11
SECTION 5.04. President..........................................................................11
SECTION 5.05. Senior Vice Presidents and Vice Presidents.........................................12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 5.06. Treasurer and Assistant Treasurer..................................................12
SECTION 5.07. Secretary and Assistant Secretary..................................................12
SECTION 5.08. Assistant Vice Presidents and Other Officers.......................................13
SECTION 5.09. General Counsel....................................................................13
SECTION 5.10. Salaries...........................................................................13
SECTION 5.11. Vacancies..........................................................................13
SECTION 5.12. Removal or Discharge...............................................................13
SECTION 5.13. Resignations.......................................................................13
ARTICLE VI - CHECKS, DRAFTS, NOTES, AND PROXIES.................................................................13
SECTION 6.01. Checks, Drafts and Notes...........................................................13
SECTION 6.02. Execution of Proxies...............................................................14
ARTICLE VII - SHARES AND TRANSFERS OF SHARES....................................................................14
SECTION 7.01. Certificates Evidencing Shares.....................................................14
SECTION 7.02. Stock Ledger.......................................................................14
SECTION 7.03. Transfers of Shares................................................................14
SECTION 7.04. Addresses of Stockholders..........................................................14
SECTION 7.05. Lost, Destroyed and Mutilated Certificates.........................................15
SECTION 7.06. Regulations........................................................................15
SECTION 7.07. Fixing Date for Determination of Stockholders of Record............................15
SECTION 7.08. Record of Holder of Shares.........................................................15
ARTICLE VIII - SEAL.............................................................................................15
SECTION 8.01. Seal...............................................................................15
ARTICLE IX - FISCAL YEAR........................................................................................16
SECTION 9.01. Fiscal Year........................................................................16
ARTICLE X - INDEMNIFICATION AND INSURANCE.......................................................................16
SECTION 10.01. Indemnification....................................................................16
SECTION 10.02. Insurance for Indemnification......................................................18
ARTICLE XI - MISCELLANEOUS......................................................................................18
SECTION 11.01. Notices and Waivers Thereof........................................................18
SECTION 11.02. Audits.............................................................................18
ARTICLE XII - AMENDMENTS........................................................................................19
SECTION 12.01. Amendments.........................................................................19
</TABLE>
ii
<PAGE> 4
FORM OF BYLAWS
OF
RETEK INC.
ARTICLE I
OFFICES
SECTION 1.01. Registered Office. The registered office of Retek Inc.
(the "Corporation") in the State of Delaware shall be at the principal office of
The Corporation Trust Company in the City of Wilmington, County of New Castle,
and the registered agent in charge thereof shall be The Corporation Trust
Company.
SECTION 1.02. Other Offices. The Corporation may also have an office or
offices at any other place or places within or without the State of Delaware as
the Board of Directors of the Corporation (the "Board of Directors") may from
time to time determine or the business of the Corporation may from time to time
require.
ARTICLE II
STOCKHOLDERS
SECTION 2.01. Annual Meetings. The annual meeting of stockholders of
the Corporation for the election of directors of the Corporation ("Directors"),
and for the transaction of such other business as may properly come before such
meeting, shall be held at such place, date and time as shall be fixed by the
Board of Directors and designated in the notice or waiver of notice of such
annual meeting; provided, however, that no annual meeting of stockholders need
be held if all actions, including the election of Directors, required by the
General Corporation Law of the State of Delaware (the "General Corporation Law")
to be taken at such annual meeting are taken by written consent in lieu of
meeting pursuant to Section 2.09 hereof.
SECTION 2.02. Special Meetings. Unless otherwise prescribed by law or
by the Corporation's Amended and Restated Certificate of Incorporation, as
amended from time to time (the "Charter"), and subject to any preferential
rights of any outstanding series of Preferred Stock (as defined in the Charter),
special meetings of stockholders of the Corporation for any purpose or purposes
may be called only by the Chairman of the Board of Directors, the President, or,
at the request in writing of a majority of the Board of Directors, any officer.
Such request shall state the purpose or purposes of the proposed meeting. In
addition, prior to the first date on which HNC Software Inc., a Delaware
corporation ("HNC"), and/or its affiliates collectively cease to beneficially
own an aggregate of at least a majority of the then outstanding shares of common
stock, par value $0.01 per share ("Common Stock"), of the Corporation (the
"Trigger Date"), the Corporation shall call a special meeting of stockholders of
the Corporation promptly upon the request of HNC or any of its affiliates (other
than the Corporation or any subsidiary of the Corporation), in each case if such
entity is a stockholder of the Corporation.
<PAGE> 5
2
SECTION 2.03. Notice of Meetings. (a) Except as otherwise provided by
law, written notice of each annual or special meeting of stockholders stating
the place, date and time of such meeting and, in the case of a special meeting,
the purpose or purposes for which such meeting is to be held, shall be given
personally or by first-class mail (airmail in the case of international
communications) to each stockholder of record (a "Stockholder") entitled to vote
thereat, not less than 10 nor more than 60 calendar days before the date of such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the Stockholder at such
Stockholder's address as it appears on the records of the Corporation. If, prior
to the time of mailing, the Secretary of the Corporation (the "Secretary") shall
have received from any Stockholder a written request that notices intended for
such Stockholder are to be mailed to some address other than the address that
appears on the records of the Corporation, notices intended for such Stockholder
shall be mailed to the address designated in such request. Any previously
scheduled meeting of the stockholders not called at the request of HNC may be
postponed, and any special meeting of the stockholders not called at the request
of HNC may be canceled, by resolution of the Board of Directors upon public
notice given prior to the date previously scheduled for such meeting of
stockholders. Any previously scheduled meeting of the stockholders called at the
request of HNC may be postponed or canceled, upon the written consent of HNC, by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such meeting of stockholders.
SECTION 2.04. Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders.
(i) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders may be
made at an annual meeting of stockholders (A) pursuant to the Corporation's
notice of meeting delivered pursuant to Section 2.03 of this Article II, (B)
by or at the direction of the Board of Directors, (C) by any stockholder of
the Corporation who was a stockholder of record at the time of the giving of
the notice provided for in this Section 2.04, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this
Section 2.04, or (D) prior to the Trigger Date, by HNC or any of its
affiliates that is a stockholder of the Corporation without the need to
comply with the procedures set forth in this Section 2.04.
(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of paragraph
(a)(i) of this Section 2.04, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other
business must be a proper subject for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than sixty (60) days nor more
than ninety (90) days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than thirty (30) days or delayed by more
than sixty (60) days from such anniversary date, notice by the stockholder
to be timely must be so delivered not earlier than the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or the
<PAGE> 6
3
tenth day following the day on which public announcement of the date of such
meeting is first made by the Corporation. For purposes of determining
whether a stockholder's notice shall have been delivered in a timely manner
for the annual meeting of stockholders in 2000, the first anniversary of the
previous year's meeting shall be deemed to be [ ], 1999. In no event shall
the public announcement of an adjournment of an annual meeting commence a
new time period for the giving of a stockholder's notice as described above.
Such stockholder's notice shall set forth (A) with respect to each person
whom the stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as
a director if elected); (B) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal
is made; and (C) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (1) the
name and address of such stockholder, as they appear on the Corporation's
books, and of such beneficial owner and (2) the class and number of shares
of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of paragraph
(a)(ii) of this Section 2.04 to the contrary, in the event that the number
of directors to be elected to the Board of Directors is increased and there
is no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors made by
the Corporation at least seventy (70) days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice required by
paragraph (a)(ii) of this Section 2.04 shall also be considered timely, but
only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on
the tenth day following the day on which such public announcement is first
made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting pursuant to Section
4 of this Article II. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (i) by or at
the direction of the Board of Directors, (ii) by any stockholder of the
Corporation who was a stockholder of record at the time of the giving of the
notice provided for in this Section 2.04, who is entitled to vote at the meeting
and who complies with the notice procedures set forth in this Section 2.04, or
(iii) prior to the Trigger Date, by HNC, or any of its affiliates that is a
stockholder of the Corporation. In the event that the Corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, (A) prior to the Trigger Date, HNC may
nominate any person or persons for election to the
<PAGE> 7
4
Board of Directors at, or at any time prior to, such special meeting of
stockholders, or (B) any stockholder may nominate such person or persons (as the
case may be), for election to the Board of Directors at such special
stockholders' meeting, if the stockholder's notice required by paragraph (a)(ii)
of this Section 2.04 shall be delivered to the Secretary of the Corporation at
the principal executive offices of the Corporation not earlier than the
ninetieth day prior to such special meeting and not later than the close of
business on the later of the sixtieth day prior to such special meeting or the
tenth day following the day on which public announcement by the Corporation is
first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
(c) General.
(i) Only persons who are nominated in accordance with the procedures
set forth in this Section 2.04 shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set
forth in this Section 2.04. Except as otherwise provided by law, the Charter
or these Bylaws, the chairman of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with this Section 2.04 and, if any
proposed nomination or business is not in compliance with this Section 2.04,
to declare that such defective proposal or nomination shall be disregarded.
(ii) For purposes of this Section 2.04, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 2.04,
for so long as the Corporation is subject to the reporting requirements of
the Exchange Act, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder
applicable to such stockholder with respect to the matters set forth in this
Section 2.04. Nothing in this Section 2.04 shall be deemed to affect any
rights (A) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act
or (B) of the holders of any series or Preferred Stock to elect directors.
SECTION 2.05. Waiver of Notice. Notice of any annual or special meeting
of Stockholders need not be given to any Stockholder who files a written waiver
of notice with the Secretary, signed by the person entitled to notice, whether
before or after such meeting. Neither the business to be transacted at, nor the
purpose of, any meeting of Stockholders need be specified in any written waiver
of notice thereof. Attendance of a Stockholder at a meeting, in person or by
proxy, shall constitute a waiver of notice of such meeting, except when such
Stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the grounds that
the notice of such meeting was inadequate or improperly given.
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SECTION 2.06. Adjournments. Whenever a meeting of Stockholders, annual
or special, is adjourned to another date, time or place, notice need not be
given of the adjourned meeting if the date, time and place thereof are announced
at the meeting at which the adjournment is taken. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Stockholder entitled to vote thereat. At the adjourned meeting, any business may
be transacted which might have been transacted at the original meeting.
SECTION 2.07. Quorum. Except as otherwise provided by law or in the
Charter, the holders of a majority of the voting power of all outstanding shares
of the Corporation entitled to vote generally in the election of directors (the
"Voting Stock"), present in person or by proxy, shall constitute a quorum for
the transaction of business at all meetings of Stockholders, whether annual or
special, except that, if required by law or pursuant to the provisions of the
Charter, when specified business is to be voted on by a class or series of stock
voting as a class, the holders of a majority of the shares of such class or
series shall constitute a quorum of such class or series for the transaction of
such business. If, however, such quorum shall not be present in person or by
proxy at any meeting of Stockholders, the person serving as chairman of the
meeting or the holders of a majority in interest of the stockholders present in
person or by proxy and who are entitled to vote on every matter that is to be
voted on without regard to class at such meeting may adjourn the meeting from
time to time in accordance with Section 2.07 hereof until a quorum shall be
present in person or by proxy.
SECTION 2.08. Organization and Conduct of Business. The Chairman of the
Board of Directors shall act as chairman of meetings of the stockholders. The
Board of Directors may designate any other officer or director of the
Corporation to act as chairman of any meeting in the absence of the Chairman of
the Board of Directors, and the Board of Directors may further provide for
determining who shall act as chairman of any stockholder's meeting in the
absence of the Chairman of the Board of Directors and such designee. The person
serving as chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in order.
The Secretary of the Corporation shall act as secretary of all meetings
of the stockholders, but in the absence of the Secretary the presiding officer
may appoint any other person to act as secretary of any meeting.
SECTION 2.09. Proxies and Voting. At any meeting of Stockholders, every
Stockholder entitled to vote may vote in person or by proxy authorized by an
instrument executed in writing (or in such manner prescribed by the General
Corporation Law of the State of Delaware) by the Stockholder, or by such
person's duly authorized attorney in fact. Election of Directors at all meetings
of the Stockholders at which Directors are to be elected need not be by written
ballot, and, subject to the rights of the holders of any series of Preferred
Stock to elect Directors, a plurality of the votes cast thereat shall elect
directors. Except as otherwise provided by law, the Charter and these Bylaws and
subject to the rights of the holders of any series of Preferred Stock, in all
matters other than the election of Directors, the affirmative vote of a majority
of the voting power of the outstanding shares present in person or represented
by proxy at the meeting and entitled to vote on the matter shall be the act of
the Stockholders.
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SECTION 2.10. Inspectors of Election. The Board of Directors may, and
to the extent required by law, shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting, decide upon the
qualification of voters, count the votes, decide the results and make a written
report thereof in accordance with the General Corporation Law of the State of
Delaware. The Board of Directors may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspector(s)
shall have the duties prescribed by law.
SECTION 2.11. Action by Written Consent. Prior to the Trigger Date, any
corporate action required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting, without prior notice, if
a consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the Corporation (either by hand or by certified or
registered mail, return receipt requested) at its registered office in the State
of Delaware or its principal place of business, or to an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded; provided, however, that effective as of and after the
Trigger Date, unless otherwise required by applicable law, any corporate action
required or permitted to be taken at any annual or special meeting of
stockholders may be taken only at a duly called annual or special meeting of
stockholders and may not be taken by written consent in lieu of such a meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. General Powers. The business and affairs of the
Corporation shall be managed or under the direction of the Board of Directors,
which may exercise all such powers of the Corporation and do all such lawful
acts and things that are not conferred upon or reserved to the stockholders or
others by law, the Charter, these Bylaws or by any contract to which the
Corporation is bound.
SECTION 3.02. Number and Term of Office. Prior to the Trigger Date, the
Board of Directors shall consist of seven (7) directors. After the Trigger Date,
and subject to the rights, if any, of holders of Preferred Stock, the number of
Directors of the Corporation shall be fixed from time to time exclusively by
resolution of the Board of Directors adopted by the affirmative vote of
directors constituting not less than a majority of the Whole Board (as defined
below), but shall consist of not less than three (3) nor more than ten (10)
directors. The directors, other than those (if any) who may be elected by the
holders of Preferred Stock voting as a separate class, shall be divided, with
respect to the time they severally hold office, into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as
possible, of one-third of the total number of directors constituting the entire
Board of Directors. The term of the initial Class I directors shall terminate on
the date of the 2000 annual meeting of
<PAGE> 10
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stockholders; the term of the initial Class II directors shall terminate on the
date of the 2001 annual meeting of stockholders; and the term of the initial
Class III directors shall terminate on the date of the 2002 annual meeting of
stockholders. At each annual meeting of stockholders, beginning with the 2000
annual meeting of stockholders, successors to the class of directors whose terms
expire at that annual meeting of stockholders shall be elected for a three year
term. The initial Class III directors shall be Ward Carey, Charles H. Gaylord,
Jr. and Alex W. Hart. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible, but in no case will a
decrease in the number of directors shorten the term of any incumbent director.
A director shall hold office until the annual meeting of stockholders for the
year in which his or her term expires and until his or her successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
For purposes of these Bylaws, the term "Whole Board" shall mean the
total number of Directors that the Corporation would have if there were no
vacancies on the Corporation's Board of Directors.
SECTION 3.03. Resignation. Any Director may resign at any time by
giving written notice to the Board, the Chairman of the Board of the Corporation
(the "Chairman") or the Secretary. Such resignation shall take effect at the
time specified in such notice or, if the time be not specified, upon receipt
thereof by the Board, the Chairman or the Secretary, as the case may be. Unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective.
SECTION 3.04. Removal. Prior to the Trigger Date, any or all of the
Directors may be removed with or without cause at any time by either (i) the
vote of the holders of a majority of the outstanding shares of Voting Stock, or
(ii) by written consent of the holders of the Voting Stock pursuant to Section
2.11 hereof. After the Trigger Date, any or all of the Directors may be removed
only with cause at any time by vote of the holders of a majority of the Voting
Stock.
SECTION 3.05. Vacancies. Subject to the rights, if any, of holders of
Preferred Stock or the terms of any contract to which the Corporation is bound,
any vacancy on the Board of Directors that results from an increase in the
number of directors and any other vacancy occurring on the Board of Directors,
howsoever resulting, may be filled by the affirmative vote of a majority of the
remaining members of the Board of Directors, though less than a quorum, or by
the sole remaining director, and except as otherwise provided by law or the
terms of any contract to which the Corporation is bound, any such vacancy may
not be filled by the stockholders of the Corporation; provided, however, that
notwithstanding the foregoing, for so long as HNC has the right to nominate
persons for election to the Board of Directors of the Corporation pursuant to
the Corporate Rights Agreement referenced in Section 13.01 hereof, as such
agreement may be amended from time to time (such nominated persons being
hereinafter called "HNC Designees"), if a vacancy on the Corporation's Board of
Directors is caused by the death, disability, retirement, resignation or removal
for cause or otherwise of an HNC Designee, then HNC shall have the sole right to
nominate an individual to fill such vacancy on the Corporation's Board of
Directors. Any Director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of directors in
which the
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new directorship was created or the vacancy occurred and until such
director's successor shall have been duly elected and qualified.
SECTION 3.06. Meetings. (a) Regular Meetings. Regular meetings of the
Board of Directors may be held at such place, either inside or outside of the
State of Delaware, and at such time, as may from time to time be designated by
the Chairman of the Board of Directors or resolution of the Board of Directors
or as may be specified in the call of any meeting. An annual meeting of the
Board of Directors shall be held on the same day as, and as soon as practicable
following, the annual meeting of stockholders or at such other time or place as
shall be determined by the Board of Directors at its regular meeting next
preceding said annual meeting of stockholders.
(b) Special Meetings. Special meetings of the Board of Directors may be
held at any time on the call of the Chairman of the Board of Directors, the
Chief Executive Officer or a majority of the Board of Directors then in office.
The person or persons authorized to call special meetings of the Board of
Directors may fix the time and place of the meetings. Meetings may be held at
any time or place without notice if all the directors are present or if those
not present waive notice of the meeting in writing.
(c) Notice of Meetings. The Secretary shall give written notice to each
Director of each meeting of the Board of Directors, which notice shall state the
place, date, time and purpose of such meeting. Notice of each such meeting shall
be given to each Director, if by mail, addressed to him at his residence or
usual place of business, at least two days before the day on which such meeting
is to be held, or shall be sent to him at such place by telecopy, telegraph,
cable, or other form of recorded communication, or be delivered personally or by
telephone not later than the day before the day on which such meeting is to be
held. A written waiver of notice, signed by the Director entitled to notice,
whether before or after the time of the meeting referred to in such waiver,
shall be deemed equivalent to notice. Neither the business to be transacted at,
nor the purpose of any meeting of the Board of Directors need be specified in
any written waiver of notice thereof. Attendance of a Director at a meeting of
the Board of Directors shall constitute a waiver of notice of such meeting,
except as provided by law.
(d) Place of Meetings. The Board of Directors may hold its meetings at
such place or places within or without the State of Delaware as the Board of
Directors or the Chairman of the Board of Directors may from time to time
determine, or as shall be designated in the respective notices or waivers of
notice of such meetings.
(e) Quorum and Manner of Acting. Subject to Section 2.04, a whole
number of Directors equal to at least a majority of the Whole Board shall
constitute a quorum for the transaction of business, but if at any meeting of
the Board of Directors there shall be less than a quorum present, a majority of
the directors present may adjourn the meeting from time to time without further
notice. Subject to the terms of any contract to which the Corporation is bound,
the act of a majority of the Directors present at a meeting at which a quorum of
the Board of Directors is present shall be the act of the Board of Directors.
The Directors present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough Directors
to leave less than a quorum.
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SECTION 3.07. Directors' Consent in Lieu of Meeting. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by all the members of the Board of Directors or such committee
and such consent is filed with the minutes of the proceedings of the Board of
Directors or such committee.
SECTION 3.08. Action by Means of Telephone or Similar Communications
Equipment. Any one or more members of the Board of Directors, or of any
committee thereof, may participate in a meeting of the Board of Directors or
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting by such means shall constitute
presence in person at such meeting.
SECTION 3.09. Compensation. Unless otherwise restricted by the Charter,
the Board of Directors may determine the compensation of Directors. In addition,
as determined by the Board of Directors, Directors may be reimbursed by the
Corporation for their expenses, if any, in the performance of their duties as
Directors. No such compensation or reimbursement shall preclude any Director
from serving the Corporation in any other capacity and receiving compensation
therefor.
SECTION 3.10. Reliance upon Books, Reports and Records. Each Director,
each member of any committee designated by the Board of Directors and each
officer, in the performance of his or her duties, shall be fully protected in
relying in good faith upon such information, opinions, reports or statements
presented to the Corporation by any of its officers or employees, or by
committees of the Board of Directors, or by any other person, as to matters such
Director, member or officer, as the case may be, reasonably believes are within
such person's professional or expert competence and who has been selected with
reasonable care by the Board of Directors or by any such committee, or in
relying in good faith upon other records of the Corporation.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 4.01. Committees of the Board of Directors. There are hereby
established as committees of the Board of Directors an Audit Committee and a
Compensation Committee, each of which shall have the powers and functions set
forth in Sections 2 and 3 hereof, respectively, and such additional powers as
may be delegated to it by the Board of Directors. The Board of Directors may
from time to time establish additional standing committees or special committees
of the Board of Directors, each of which shall have such powers and functions as
may be delegated to it by the Board of Directors. The Board of Directors may
abolish any committee established by or pursuant to this Section 1 as it may
deem advisable. Each such committee shall consist of two or more directors, the
exact number being determined from time to time by the Board of Directors.
Designations of the chairman and members of each such committee, and, if
desired, a vice chairman and alternates for members, shall be made by the Board
of Directors. In the absence or disqualification of any member of any committee
and any alternate member in his or her place, the member or members of the
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committee present at the meeting and not disqualified from voting whether or not
he or she or they constitute a quorum, may by unanimous vote appoint another
member of the Board of Directors to act at the meeting in the place of the
absent or disqualified member. Each committee shall have a secretary who shall
be designated by its chairman. A vice chairman of a committee shall act as the
chairman of the committee in the absence or disability of the chairman. Nothing
herein shall be deemed to prevent the Board of Directors from appointing one or
more committees consisting in whole or in part of persons who are not directors
of the Corporation; provided, however, that no such committee shall have or may
exercise any authority of the Board of Directors.
SECTION 4.02. Audit Committee. The Audit Committee shall select and
engage, on behalf of the Corporation, independent public accountants to (a)
audit the books of account and other corporate records of the Corporation and
(b) perform such other duties as the Audit Committee may from time to time
prescribe. The Audit Committee shall transmit financial statements certified by
such independent public accountants to the Board of Directors after the close of
each fiscal year. The selection of independent public accountants for each
fiscal year shall be made in advance of the annual meeting of stockholders in
such fiscal year and shall be submitted for ratification or rejection at such
meeting. The Audit Committee shall confer with such accountants and review and
approve the scope of the audit of the books of account and other corporate
records of the Company. The Audit Committee shall have the power to confer with
and direct the officers of the Corporation to the extent necessary to review the
internal controls, accounting practices, financial structure and financial
reporting of the Corporation. From time to time the Audit Committee shall report
to and advise the Board of Directors concerning the results of its consultation
and review and such other matters relating to the internal controls, accounting
practices, financial structure and financial reporting of the Corporation as the
Audit Committee believes merit review by the Board of Directors. The Audit
Committee also shall perform such other functions and exercise such other powers
as may be delegated to it from time to time by the Board of Directors.
SECTION 4.03. Compensation Committee. The Compensation Committee shall
fix from time to time the salaries of members of the Board of Directors who are
officers or employees of the Corporation and of all Senior Vice Presidents and
Vice Presidents of the Corporation. It also shall perform such functions as may
be delegated to it under the provisions of any bonus, supplemental compensation,
special compensation or stock option plan of the Corporation.
SECTION 4.04. Rules and Procedures. Each committee may fix its own
rules and procedures and shall meet at such times and places as may be provided
by such rules, by resolution of the committee or by call of the chairman or vice
chairman of such committee. Notice of meeting of each committee, other than of
regular meetings provided for by its rules or resolutions, shall be given to
committee members. The presence of a majority of its members, but not less than
two, shall constitute a quorum of any committee, and all questions shall be
decided by a majority vote of the members present at the meeting. All action
taken at each committee meeting shall be recorded in minutes of the meeting.
SECTION 4.05. Application of Article. Whenever any provision of any
other document relating to any committee of the Corporation named therein shall
be in conflict with
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any provision of this Article IV, the provisions of this Article IV shall
govern, except that if such other document shall have been approved by the
stockholders or by the Board of Directors, the provisions of such other document
shall govern.
ARTICLE V
OFFICERS
SECTION 5.01. Officers. The officers of the Company may include a
Chairman of the Board of Directors, who shall be chosen from among the
directors, a Chief Executive Officer, a President, a Chief Financial Officer,
one or more Senior Vice Presidents, one or more Vice Presidents, a Treasurer, a
General Counsel and a Secretary, each of whom shall be elected by the Board of
Directors to hold office until his or her successor shall have been chosen and
shall have qualified. The Board of Directors, the Chairman of the Board of
Directors, the Chief Executive Officer and the President may elect or appoint
one or more Controllers, one or more Assistant Vice Presidents, one or more
Assistant Treasurers, one or more Assistant General Counsels and one or more
Assistant Secretaries, and the Board of Directors may elect or appoint such
other officers as it may deem necessary, or desirable, each of whom shall have
such authority, shall perform such duties and shall hold office for such term as
may be prescribed by the Board of Directors from time to time. Any person may
hold at one time more than one office, excepting that the duties of the
President and Secretary shall not be performed by one person.
SECTION 5.02. Chairman of the Board of Directors. The Chairman of the
Board of Directors shall have ultimate authority for decisions relating to the
general management and control of the affairs and business of the Corporation,
subject to the control of the Board of Directors, and shall see that all orders
and resolutions of the Board of Directors are carried into effect. The Chairman
of the Board of Directors shall perform all other duties and exercise all other
powers commonly incident to the office of Chairman or which are or from time to
time may be delegated to him or her by the Board of Directors, or which are or
may at any time be authorized or required by law. He or she shall preside at all
meetings of the Board of Directors and shall make reports to the Board of
Directors and stockholders. The Chairman of the Board may also serve as Chief
Executive Officer, if so elected by the Board of Directors. The Board of
Directors may also elect a Vice-Chairman to act in the place of the Chairman
upon his or her absence or inability to act.
SECTION 5.03. Chief Executive Officer. Subject to the provisions of
these Bylaws and to the direction of the Board of Directors and the Chairman of
the Board of Directors, the Chief Executive Officer shall exercise supervision
over the business of the Corporation and over its several officers, subject to
the oversight of the Chairman of the Board of Directors, and shall exercise all
other powers commonly incident of the office of Chief Executive Officer or which
are or from time to time may be delegated to him or her by the Board of
Directors, or which are or may at any time be authorized or required by law.
SECTION 5.04. President. Subject to the provisions of these Bylaws and
to the direction of the Board of Directors, the Chairman of the Board of
Directors and of the Chief Executive Officer, the President shall have such
powers and shall perform such duties as from time to time may be delegated to
him or her by the Board of Directors, the Chairman of the
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Board of Directors or by the Chief Executive Officer, or which are or may at any
time be authorized or required by law.
SECTION 5.05. Senior Vice Presidents and Vice Presidents. Each of the
Senior Vice Presidents and each of the other Vice Presidents shall have such
powers and shall perform such duties as may be delegated to him or her by the
Board of Directors, the Chairman of the Board of Directors, the Chief Executive
Officer, the President or such other officer or officers to whom he or she is
directly responsible.
SECTION 5.06. Treasurer and Assistant Treasurer. The Treasurer, subject
to the direction of the Board of Directors, shall have the care and custody of
all funds and securities of the Corporation. When necessary or proper he or she
shall endorse on behalf of the Corporation, for collection, checks, notes and
other obligations, and shall deposit all funds of the Corporation in such banks
or other depositaries as may be designated by the Board of Directors or by such
officers or employees as may be authorized by the Board of Directors so to
designate. He or she shall perform all acts incident to the office of Treasurer,
subject to the control of the Board of Directors and such other officer or
officers to whom he or she is directly responsible. He or she may be required to
give a bond for the faithful discharge of his or her duties, in such sum and
upon such conditions as the Board of Directors may require.
At the request and direction of the Treasurer or, in the case of his or
her absence or inability to act, any Assistant Treasurer may act in his or her
place. In the case of the death of the Treasurer, or in the case of his or her
absence or inability to act without having designated an Assistant Treasurer to
act temporarily in his or her place, the Assistant Treasurer so to perform the
duties of the Treasurer shall be designated by the Chairman of the Board of
Directors, the Chief Executive Officer, the President or a Senior Vice
President.
SECTION 5.07. Secretary and Assistant Secretary. The Secretary shall
keep full and accurate minutes of the meetings of the stockholders and of the
Board of Directors in the proper record book of the Corporation provided
therefor, and, when required, the minutes of meetings of the committees, and
shall be responsible for the custody of all such minutes. Subject to the
direction of the Board of Directors, the Secretary shall have custody of the
stock ledgers and documents of the Corporation. He or she shall have custody of
the corporate seal of the Corporation and shall affix and attest such seal to
any instrument whose execution under seal shall have been duly authorized. He or
she shall give due notice of meetings and, subject to the direction of the Board
of Directors, shall perform all other duties commonly incident to his or her
office or as properly required of him or her by the Chairman of the Board of
Directors and such other officer or officers to whom he or she is directly
responsible and shall enjoy all other powers commonly incident to his or her
office.
At the request and direction of the Secretary or, in the case of his or
her absence or inability to act, any Assistant Secretary may act in his or her
place. In the case of the death of the Secretary, or in the case of his or her
absence or inability to act without having designated an Assistant Secretary to
act temporarily in his or her place, the Assistant Secretary or other person so
to perform the duties of the Secretary shall be designated by the Chairman of
the Board of Directors, the President or an Executive Vice President.
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SECTION 5.08. Assistant Vice Presidents and Other Officers. Each
assistant vice president and other officers shall perform such duties commonly
incident to his or her office or as properly required of him or her by the
Chairman of the Board of Directors and such other officer or officers to whom he
or she is directly responsible.
SECTION 5.09. General Counsel. The General Counsel shall have general
supervision of all matters of a legal nature concerning the Corporation. He or
she shall perform all such duties commonly incident to his or her office or as
properly required of him or her by the Chairman of the Board of Directors and
such other officer or officers to whom he or she is directly responsible.
SECTION 5.10. Salaries. Salaries of officers, agents or employees shall
be fixed from time to time by the Board of Directors or by such committee or
committees, or person or persons, if any, to whom such power shall have been
delegated by the Board of Directors. An employment contract, whether with an
officer, agent or employee, if expressly approved or specifically authorized by
the Board of Directors, may fix a term of employment thereunder; and such
contract, if so approved or authorized, shall be valid and binding upon the
Corporation in accordance with the terms thereof, provided that this provision
shall not limit or restrict in any way the right of the Corporation at any time
to remove from office, discharge or terminate the employment of any such
officer, agent or employee prior to the expiration of the term of employment
under any such contract.
SECTION 5.11. Vacancies. A vacancy in any office filled by election of
the Board of Directors may be filled by the Board of Directors by the election
of a new officer who shall hold office, subject to the provisions of this
Article V, until the regular meeting of the directors following the next annual
meeting of the stockholders and until his or her successor is elected.
SECTION 5.12. Removal or Discharge. Any officer may be removed or
discharged by the Chairman of the Board of Directors at any time excepting an
officer who is also a director. Any officer who also is a director may be
discharged as an officer at any time by the Board of Directors.
SECTION 5.13. Resignations. Any officer of the Corporation, whether
elected or appointed, may resign at any time by giving written notice of such
resignation to the Chairman of the Board of Directors, the Chief Executive
Officer, the President, or the Secretary, and such resignation shall be deemed
effective as of the close of business on the date said notice is received by the
Chairman of the Board of Directors, the Chief Executive Officer, the President,
or the Secretary, or at such later time as is specified therein. No formal
action shall be required of the Board of Directors or the stockholders to make
any such resignation effective.
ARTICLE VI
CHECKS, DRAFTS, NOTES, AND PROXIES
SECTION 6.01. Checks, Drafts and Notes. All checks, drafts and other
orders for the payment of money, notes and other evidences of indebtedness
issued in the name of the
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Corporation shall be signed by such officer or officers, agent or agents of the
Corporation and in such manner as shall be determined, from time to time, by
resolution of the Board.
SECTION 6.02. Execution of Proxies. The Chairman of the Board of
Directors, the Chief Executive Officer, or the President, or, in the absence or
disability of both of them, any Senior Vice President or Vice President, may
authorize, from time to time, the execution and issuance of proxies to vote
shares of stock or other securities of other corporations held of record by the
Corporation and the execution of consents to action taken or to be taken by any
such corporation. All such proxies and consents, unless otherwise authorized by
the Board, shall be signed in the name of the Corporation by the Chairman of the
Board of Directors, the Chief Executive Officer, the President or any Vice
President.
ARTICLE VII
SHARES AND TRANSFERS OF SHARES
SECTION 7.01. Certificates Evidencing Shares. Shares shall be evidenced
by certificates in such form or forms as shall be approved by the Board of
Directors. Certificates shall be issued in consecutive order and shall be
numbered in the order of their issue, and shall be signed by the Chairman, the
Chief Executive Officer, the President or any Vice President and by the
Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer.
Any and all signatures on the certificate may be a facsimile. In the event any
such officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to hold such office or to be employed by the
Corporation before such certificate is issued, such certificate may be issued by
the Corporation with the same effect as if such officer had held such office on
the date of issue.
SECTION 7.02. Stock Ledger. A stock ledger in one or more counterparts
shall be kept by the Secretary, in which shall be recorded the name and address
of each person, firm or corporation owning the Shares evidenced by each
certificate evidencing Shares issued by the Corporation, the number of Shares
evidenced by each such certificate, the date of issuance thereof and, in the
case of cancellation, the date of cancellation. Except as otherwise expressly
required by law, the person in whose name Shares stand on the stock ledger of
the Corporation shall be deemed the owner and recordholder thereof for all
purposes.
SECTION 7.03. Transfers of Shares. Registration of transfers of Shares
shall be made only in the stock ledger of the Corporation upon request of the
registered holder of such shares, or of his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, and upon the
surrender of the certificate or certificates evidencing such Shares properly
endorsed or accompanied by a stock power duly executed, together with such proof
of the authenticity of signatures as the Corporation or its agents may
reasonably require.
SECTION 7.04. Addresses of Stockholders. Each Stockholder shall
designate to the Secretary an address at which notices of meetings and all other
corporate notices may be served or mailed to such Stockholder, and, if any
Stockholder shall fail to so designate such an address, corporate notices may be
served upon such Stockholder by mail directed to the mailing address, if any, as
the same appears in the stock ledger of the Corporation or at the last known
mailing address of such Stockholder.
<PAGE> 18
15
SECTION 7.05. Lost, Destroyed and Mutilated Certificates. Each
recordholder of Shares shall promptly notify the Corporation of any loss,
destruction or mutilation of any certificate or certificates evidencing any
Share or Shares of which he is the recordholder. The Board of Directors may, in
its discretion, cause the Corporation to issue a new certificate in place of any
certificate theretofore issued by it and alleged to have been mutilated, lost,
stolen or destroyed, upon the surrender of the mutilated certificate or, in the
case of loss, theft or destruction of the certificate, upon satisfactory proof
of such loss, theft or destruction, and the Board of Directors or any financial
officer of the Corporation may, in its discretion, require the recordholder of
the Shares evidenced by the lost, stolen or destroyed certificate or his legal
representative to give the Corporation a bond sufficient to indemnify the
Corporation against any claim made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
SECTION 7.06. Regulations. The Board of Directors may make such other
rules and regulations as it may deem expedient, not inconsistent with these
Bylaws, concerning the issue, transfer and registration of certificates
evidencing Shares.
SECTION 7.07. Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the Stockholders entitled to notice
of or to vote at any meeting of Stockholders or any adjournment thereof, or to
express consent to, or to dissent from, corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other such action. A determination of the
Stockholders entitled to notice of or to vote at a meeting of Stockholders shall
apply to any adjournment of such meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
SECTION 7.08. Record of Holder of Shares. The Corporation shall be
entitled to treat the holder of record of any share or shares as the holder in
fact thereof, and accordingly shall not be bound to recognize any equitable or
other claims to or interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof, save as expressly
provided by the General Corporation Law of the State of Delaware. The
Corporation shall be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive dividends and to vote
as such owner.
ARTICLE VIII
SEAL
SECTION 8.01. Seal. The Board may approve and adopt a corporate seal,
which shall be in the form of a circle and shall bear the full name of the
Corporation, the year of its incorporation and the words "Corporate Seal
Delaware".
<PAGE> 19
16
ARTICLE IX
FISCAL YEAR
SECTION 9.01. Fiscal Year. The fiscal year of the Corporation shall end
on the thirty-first day of December of each year unless changed by resolution of
the Board.
ARTICLE X
INDEMNIFICATION AND INSURANCE
SECTION 10.01. Indemnification. (a) The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a present or former director, officer, employee
or agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 10.01(a) and
(b) of these Bylaws, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
<PAGE> 20
17
(d) Any indemnification under Section 10.01(a) and (b) of these Bylaws
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section
10.01(a) and (b) of these Bylaws. Such determination shall be made with respect
to a person who is a director or officer at the time of such determination, (i)
by a majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (ii) by a committee of such
directors designated by majority vote of such directors, even though less than
quorum, or (iii) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (iv) by the stockholders
of the Corporation.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation pursuant to this Article X. Such expenses (including attorneys'
fees) incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the Corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, other Sections of this Article X shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(g) For purposes of this Article X, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article X with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(h) For purposes of this Article X, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves service by, such director, officer, employee or
agent with respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
X.
<PAGE> 21
18
(i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article X shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 10.02. Insurance for Indemnification. The Corporation shall
have the power to purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation has the power to indemnify such person
against such liability under this Article X or the provisions of Section 145 of
the General Corporation Law.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Notices and Waivers Thereof. Whenever any notice
whatever is required by these Bylaws, the Charter or any of the laws of the
State of Delaware to be given to any stockholder, director or officer, such
notice, except as otherwise provided by the laws of the State of Delaware, may
be given personally or by telephone or be given by facsimile transmission or
other form of electronic communication, addressed to such stockholder at such
person's address as it appears on the stock transfer books of the Corporation,
or to such director or officer at his or her Corporation location, if any, or at
such address as appears on the books of the Corporation, or the notice may be
given in writing by depositing the same in a post office, or in a regularly
maintained letter box, or by sending it via courier in a postpaid, sealed
wrapper addressed to such stockholder at such person's address as it appears on
the stock transfer books of the Corporation, or to such director or officer at
his or her Corporation location, if any, or such address as appears on the books
of the Corporation.
Any notice given by facsimile transmission or other form of electronic
communication shall be deemed to have been given when it shall have been
transmitted. Any notice given by mail or courier shall be deemed to have been
given when it shall have been mailed or delivered to the courier.
A waiver of any such notice in writing, including by facsimile
transmission, signed or dispatched by the person entitled to such notice or by
his or her duly authorized attorney, whether before or after the time stated
therein, shall be deemed equivalent to the notice required to be given, and the
presence at any meeting of any person entitled to notice thereof shall be deemed
a waiver of such notice as to such person.
SECTION 11.02. Audits. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors, and
it shall be the duty of the Board of Directors to cause such audit to be done
annually.
<PAGE> 22
19
SECTION 11.03. Contracts References. Whenever in these Bylaws the
phrase "any contract to which the Corporation is bound" or a similar phrase is
used, the reference therein to a contract to which the Corporation is bound
shall specifically include, without limitation, that certain Separation
Agreement entered into among the Corporation, HNC and Retek Information Systems,
Inc., as such may be amended from time to time, and that certain Corporate
Rights Agreement among the Corporation, HNC and Retek Information Systems, Inc.,
as such may be amended from time to time, and the contents of such contracts
shall be deemed to have been incorporated herein by reference.
ARTICLE XII
AMENDMENTS
SECTION 12.01. Amendments. These Bylaws may be altered, amended or
repealed, and new Bylaws may be adopted (a) at any annual or special meeting of
stockholders by the affirmative vote of the holders of a majority of the voting
power of the stock issued and outstanding and entitled to vote thereat,
provided, however, that after the Trigger Date, any proposed alteration,
amendment or repeal of, or the adoption of any Bylaw inconsistent with, Sections
2.02, 2.04, 2.11, 3.02, 3.04 and 3.05 of the Bylaws by the stockholders shall
require the affirmative vote of the holders of at least 80% of the voting power
of all Voting Stock then outstanding, voting together as a single class, and
provided, further, however, that, in the case of any such stockholder action at
a special meeting of stockholders, notice of the proposed alteration, amendment,
repeal or adoption of the new Bylaw or Bylaws must be contained in the notice of
such special meeting, (b) by the affirmative vote of a majority of the Whole
Board or (c) by written consent of the stockholders of the Corporation if
permitted by the Charter, these Bylaws or the General Corporation Law.
<PAGE> 1
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
EXHIBIT 10.1
SUBJECT TO ORACLE MANAGEMENT APPROVAL CONFIDENTIAL
ORACLE(R)
INDUSTRY SOLUTIONS INITIATIVE
MASTER AGREEMENT
<PAGE> 2
SUBJECT TO ORACLE MANAGEMENT APPROVAL
TABLE OF CONTENTS
TABLE OF CONTENTS.......................................................... 1
ARTICLE I -- DEFINITIONS................................................... 1
1.1 CUSTOMER............................................................... 1
1.2 DEVELOPER MATERIALS.................................................... 1
1.3 DISTRIBUTOR............................................................ 1
1.4 DOCUMENTATION.......................................................... 1
1.5 INTELLECTUAL PROPERTY RIGHTS........................................... 1
1.6 ISI CO-MEMBER.......................................................... 1
1.7 ISI CO-MEMBER PROGRAMS................................................. 1
1.8 ISI MEMBER............................................................. 1
1.9 ISI MEMBER PROGRAMS.................................................... 1
1.10 OBJECT MATERIALS...................................................... 2
1.11 ORACLE................................................................ 2
1.12 ORACLE PROGRAMS....................................................... 2
1.13 ORACLE SOLUTION SUITE................................................. 2
1.14 OTHER PARTY MATERIALS................................................. 2
1.15 POINT SOLUTION........................................................ 2
1.16 SOURCE MATERIALS...................................................... 2
1.17 SUPPORTED LICENSE..................................................... 2
1.18 TARGET MARKET......................................................... 2
1.19 TECHNICAL SUPPORT..................................................... 2
1.20 TERRITORY............................................................. 3
1.21 UPDATES............................................................... 3
ARTICLE II -- STRATEGIC ALLIANCE TERMS..................................... 3
2.1 TARGET MARKET ADDENDUM................................................. 3
2.2 RELATIONSHIP MANAGERS.................................................. 3
2.3 EXECUTIVE COMMITTEE.................................................... 3
2.4 PUBLICITY.............................................................. 4
2.5 DISPUTE RESOLUTION..................................................... 4
ARTICLE III -- ORACLE SOLUTION SUITE DEVELOPMENT........................... 5
3.1 GENERAL DEVELOPMENT RESPONSIBILITIES................................... 5
3.2 TECHNOLOGY AND ARCHITECTURE COMPLIANCE................................. 5
3.3 INTEGRATION WITH UPDATES; RELEASES.................................... 6
3.4 PROGRAM COMPETITIVENESS................................................ 6
3.5 NEW DEVELOPMENT COMMITMENTS............................................ 7
3.6 RIGHT TO ADD NEW ISI MEMBER PROGRAMS................................... 8
3.7 STATEMENTS OF WORK..................................................... 8
ARTICLE IV -- SALES COOPERATION............................................ 8
4.1 SALES MODEL............................................................ 8
4.2 ORACLE SOLE POINT OF CUSTOMER CONTACT.................................. 9
4.3 SALES FORCE QUOTA/COMPENSATION......................................... 9
4.4 RULES OF ENGAGEMENT.................................................... 9
ARTICLE V -- SERVICES AND TRAINING......................................... 10
5.1 SERVICES SUBCONTRACT AGREEMENT......................................... 10
5.2 METHODOLOGY............................................................ 10
5.3 TRAINING............................................................... 10
Page: i
<PAGE> 3
SUBJECT TO ORACLE MANAGEMENT APPROVAL
5.4 CONSULTING........................................................... 11
ARTICLE VI - TECHNICAL SUPPORT............................................. 11
6.1 TECHNICAL SUPPORT FOR ORACLE SOLUTION SUITE.......................... 11
6.2 TECHNICAL SUPPORT FOR ISI MEMBER PROGRAMS............................ 11
6.3 BUG FIXES............................................................ 11
6.4 INTERNAL DEVELOPER TECHNICAL SUPPORT................................. 12
6.5 EXTENDED SUPPORT..................................................... 12
ARTICLE VII - LICENSES GRANTED............................................. 12
7.1 LICENSE TO ISI MEMBER................................................ 12
7.2 DEVELOPMENT, TECHNICAL SUPPORT, TRAINING, DEMONSTRATION,
CONSULTING LICENSE TO ORACLE......................................... 12
7.3 SUBLICENSING LICENSE................................................. 13
7.4 TERMS FOR DIRECT LICENSES TO CUSTOMERS............................... 14
7.5 DISTRIBUTORS......................................................... 14
7.6 TRADEMARKS........................................................... 14
7.7 ARCHIVAL COPIES...................................................... 14
7.8 NO REVERSE ENGINEERING............................................... 14
7.9 OWNERSHIP............................................................ 14
7.10 THIRD PARTY MATERIALS................................................ 15
7.11 LICENSE OF INTELLECTUAL PROPERTY RIGHTS.............................. 16
7.12 NO SERVICE BUREAU USE................................................ 16
ARTICLE VIII - FEES........................................................ 16
8.1 SUBLICENSE FEES...................................................... 16
8.2 TECHNICAL SUPPORT FEES............................................... 17
8.3 EDUCATION/TRAINING FEES.............................................. 19
8.4 SUBLICENSE FEE LIMITATIONS........................................... 19
8.5 PAYMENT; REPORTING; RELICENSING...................................... 19
8.6 RECORDS; AUDIT....................................................... 19
8.7 CUSTOMER LICENSE FEE DISCOUNTS....................................... 20
8.8 FREEDOM.............................................................. 20
ARTICLE IX - TERM AND TERMINATION......................................... 20
9.1 INITIAL TERM......................................................... 20
9.2 TERMINATION.......................................................... 20
9.3 RIGHTS UPON TERMINATION.............................................. 22
9.4 EFFECT OF TERMINATION................................................ 23
ARTICLE X - LIMITED WARRANTY, INFRINGEMENT INDEMNITY, AND LIMITATION
OF LIABILITY................................................... 24
10.1 LIMITED WARRANTIES AND EXCLUSIVE REMEDIES............................ 24
10.2 INFRINGEMENT INDEMNITY............................................... 25
10.3 LIMITATION OF LIABILITY.............................................. 26
10.4 ORACLE INDEMNIFICATION............................................... 27
ARTICLE XI - GENERAL....................................................... 27
11.1 NONDISCLOSURE........................................................ 27
11.2 GOVERNING LAW........................................................ 29
11.3 NOTICE............................................................... 29
11.4 RELATIONSHIP BETWEEN THE PARTIES..................................... 29
11.5 INDEPENDENT DEVELOPMENT/FREEDOM OF ACTION............................ 29
11.6 EXPORT............................................................... 29
Page: ii
<PAGE> 4
SUBJECT TO ORACLE MANAGEMENT APPROVAL
11.7 SEVERABILITY; ASSIGNMENT; COUNTERPARTS; NO WAIVER; ENTIRE AGREEMENT.. 30
EXHIBIT LIST............................................................... 31
Page: iii
<PAGE> 5
SUBJECT TO ORACLE MANAGEMENT APPROVAL
This Industry Solutions Initiative Master Agreement (the "Agreement") is made
by and between Oracle Corporation, with its principal place of business at 500
Oracle Parkway, Redwood City, California 94065, and Retek Information Systems
with its principal of business at 801 Nicollet Mall, Minneapolis, Minnesota
55402.
ARTICLE I - DEFINITIONS
1.1 CUSTOMER
"Customer" shall mean an end-user to whom Oracle or a Distributor has
granted a license for an Oracle Solution Suite or has granted a
sublicense for an ISI Member Program under this Agreement.
1.2 DEVELOPER MATERIALS
"Developer Materials" shall mean Source Materials, internal technical
documentation, design documentation, help materials, tutorial programs,
and appropriate debug code. Developer Materials will not include any
Other Party Materials.
1.3 DISTRIBUTOR
"Distributor" shall mean a third party that is appointed by Oracle to
market and sublicense the Oracle Solution Suite and/or ISI Member
Programs under the terms of this Agreement. The term "Distributor"
shall include, but not be limited to, resellers, original equipment
manufacturers, value added relicensors, dealers, agents, and
subdistributors.
1.4 DOCUMENTATION
"Documentation" shall mean installation guides, user guides and
manuals.
1.5 INTELLECTUAL PROPERTY RIGHTS
"Intellectual Property Rights" shall mean patent rights, copyright
rights (including, but not limited to, rights in audiovisual works and
Moral Rights), trade secret rights, and any other intellectual property
rights recognized by the law of each applicable jurisdiction. "Moral
Rights" shall mean any rights to claim authorship of a work, to object
to or prevent the modification of a work, or to withdraw from
circulation or control the publication or distribution of a work, and
any similar right, existing under the law of any country in the world,
or under any treaty.
1.6 ISI CO-MEMBER
"ISI Co-Member" shall mean a third-party software developer which has
executed an Oracle ISI Master Agreement, and a Target Market Addendum
for the Target Market, with Oracle.
1.7 ISI CO-MEMBER PROGRAMS
"ISI Co-Member Programs" shall mean for each Target Market the
computer programs identified as ISI Co-Member Programs in the
applicable Target Market Addendum that are available in production
release for use on the applicable computer/operating system
combinations. "ISI Co-Member Programs" shall include the Documentation
for use of such ISI Co-Member software, and the ISI Member's Updates.
1.8 ISI MEMBER
"ISI Member" shall mean Retek Information Systems, and any other
corporation, partnership, firm, association or any other person in
which Retek Information Systems, directly or indirectly, holds a fifty
percent (50%) or more ownership interest.
1.9 ISI MEMBER PROGRAMS
"ISI Member Programs" shall mean, for each Target Market, the computer
programs identified as ISI Member Programs in the applicable Target
Market Addendum that are available in production release for use on the
applicable computer/operating system combinations. "ISI Member
Programs" shall include the Documentation for use of such ISI Member
software, and ISI Member's Updates.
Page 1
<PAGE> 6
SUBJECT TO ORACLE MANAGEMENT APPROVAL
1.10 OBJECT MATERIALS
"Object Materials" shall mean materials, in machine-readable form,
necessary to run the Oracle Programs, ISI Member Programs, ISI
Co-Member Programs and/or other software products described in this
Agreement, as applicable, including computer programming code
substantially in binary form, which is directly executable by a
computer after suitable processing but without the interventing steps
of compilation or assembly. "Object Materials" shall include all help,
message, and overlay files. Each reference to Oracle Programs, ISI
Member Programs and/or ISI Co-Member Programs in this Agreement shall
mean only the Object Materials for such programs (not Source Materials
or Developer Materials) unless otherwise expressly specified.
1.11 ORACLE
"Oracle" shall mean Oracle Corporation; any other corporation,
partnership, firm, association or any other person in which Oracle
Corporation, directly or indirectly, holds a fifty percent (50%) or
more ownership interest; and any entity which is the exclusive
distributor of Oracle Programs within a country.
1.12 ORACLE PROGRAMS
"Oracle Programs" shall mean, for each Target Market, the computer
programs identified as Oracle Programs in the applicable Target Market
Addendum that are available in production release and listed in
Oracle's Global Price List for use on the applicable computer/operating
system combinations. "Oracle Programs" shall include Documentation and
Oracle's Updates.
1.13 ORACLE SOLUTION SUITE
"Oracle Solution Suite" shall mean, for each Target Market, a suite of
computer programs incorporating Oracle Programs, ISI Member Programs
and/or ISI Co-Member Programs released pursuant to the applicable
Development Plan or licensed by Oracle to a Customer in the Target
Market in accordance with the terms of this Agreement.
1.14 OTHER PARTY MATERIALS
"Other Party Materials" shall mean the two software modules licensed
to ISI Member from MicroStrategy, Inc. and Kenan Systems Corporation
and incorporated into the ISI Member Programs.
1.15 POINT SOLUTION
"Point Solution" shall mean any use of an ISI Member Program as a
stand-alone product or in combination with software products other than
the Oracle Solution Suite.
1.16 SOURCE MATERIALS
"Source Materials" shall mean uncommented, partially commented and
fully commented program source code from which the Oracle Programs, ISI
Member Program (except for Other Party Materials) and/or ISI Co-Member
Program Object Materials (as applicable) are compiled; and data models
for the Oracle Programs, ISI Member Program and/or ISI Co-Member
Programs (as applicable). "Source Materials" shall include the
foregoing in electronic and hard-copy form, whether created by or for a
party hereto.
1.17 SUPPORTED LICENSE
"Supported License" shall mean a license for an Oracle Program, ISI
Member Program or ISI Co-Member Program for which the licensee has
ordered Technical Support for the relevant time period.
1.18 TARGET MARKET
"Target Market" shall mean the industry(ies) defined in the applicable
Target Market Addendum.
1.19 "TECHNICAL SUPPORT" shall mean support for an Oracle Program, ISI
Member Program or ISI Co-Member Program (as applicable) provided,
respectively, under Oracle's, ISI Member's or an ISI Co-Member's
policies in effect on the date Technical Support is ordered. At a
minimum such support shall include telephone support, bug fixes and
Updates.
Page 2
<PAGE> 7
SUBJECT TO ORACLE MANAGEMENT APPROVAL
1.20 TERRITORY
"Territory" shall mean the world.
1.21 UPDATES
"Updates" shall mean a subsequent release of an Oracle Program, an ISI
Member Program, or an ISI Co-Member Program, as applicable, which is
generally made available for Supported Licenses at no additional charge,
other than media and handling charges. Updates shall not include any
release, option or future product which Oracle, ISI Member or an ISI
Co-Member, as applicable, licences separately.
ARTICLE II - STRATEGIC ALLIANCE TERMS
2.1 TARGET MARKET ADDENDUM
Within sixty (60) days after the Effective Date of this Agreement, the
parties shall execute at least one completed Target Market Addendum, which
shall include, without limitation, a sales plan ("Sales Plan"), a
statement of direction ("Statement of Direction") and a development plan
("Development Plan").
2.1.1 Sales Plan. The Sales Plan will address, without limitation,
budgets, staffing levels, rules of engagement, and revenue
projections, and will be subject to modification from time to time
by written agreement of the parties.
2.1.2 Statement of Direction. The Statement of Direction shall address
without limitation the following:
(a) General product direction of the Oracle Solution Suite;
(b) Integration between Oracle and ISI Member Programs; and
(c) Integration to be developed in evolutionary phases.
2.1.3 Development Plan. The Development Plan shall address without
limitation the following:
(a) Integration phases;
(b) ISI Member Programs included in integration;
(c) Oracle Solution Suite release schedule;
(d) Common development procedures including certification, porting,
localization, installation;
(e) Development tasks and responsibilities; and
(f) Critical Deliverables (as defined in the Development Plan).
The development plan (and any changes thereto) shall not become
effective until approved in writing by the Oracle Senior Vice
President of Consumer Sector and ISI Member's Vice President for
Research and Development. The development plan may be modified from
time to time by mutual agreement of the parties in writing as set
forth above.
2.2 RELATIONSHIP MANAGERS
Each party shall designate a relationship manager who shall maintain
primary responsibility for the relationship between the parties. The
parties' initial relationship managers are Dan Leviten for Oracle and
David Tidmarsh for ISI Member.
2.3 EXECUTIVE COMMITTEE
2.3.1 Purpose. The parties shall create an executive committee (the
"Executive Committee") to oversee the cooperation among Oracle, ISI
Member, and ISI Co-Members with respect to the Oracle Solution
Suite(s).
2.3.2 Composition. The Executive Committee shall be composed of an Oracle
Vice President, ISI Member President (or his/her designee), and the
chief executive officer (or his/her designee) of each ISI
Co-Member. The Executive Committee shall be chaired by the Oracle
member and shall meet as the committee members may deem
appropriate.
2.3.3 Duties. The duties of the Executive Committee shall include,
without limitation:
a. Reviewing and recommending for approval the Sales Plan,
Development Plan, and other plans for the various functional
areas with respect to the Oracle Solution Suite.
b. Reviewing and recommending for approval budgets for each of the
foregoing plans.
c. Reviewing operational and performance reviews conducted by
appointed subcommittees.
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d. Reviewing status reports prepared by appointed subcommittees.
e. Resolving issues and disputes with respect to the Oracle
Solution Suite Committee pursuant to Section 2.5 (Dispute
Resolution).
f. Nominating, reviewing and recommending for approval or
disapproval candidates for membership in the Oracle ISI Program
for the Target Market.
2.3.4 Subcommittees of Executive Committee. Each party and ISI
Co-Member shall appoint a member to each sub-committee of the
Executive Committee. The sub-committees shall include but not be
limited to Sales, Consulting, Development, Marketing, Finance, and
Industry Strategy. Each sub-committee shall meet quarterly and
report to the Executive Committee. The purpose of the
sub-committees is to manage the operational relationship between
the parties (including ISI Co-Members), identifying and resolving
issues and conflicts with respect to the Oracle Solution Suite
and/or escalating disputes to the Executive Committee pursuant to
Section 2.5 (Dispute Resolution).
2.3.5 Customer Advisory Board Participation. ISI Member agrees that it
will invite Oracle's Senior Vice President for the applicable
Industry Sector specified in each signed Target Market Addendum (or
his/her designee) to all ISI Member Customer advisory board
meetings. ISI Member also agrees to make commercially reasonable
efforts to ensure that all public statements made to the ISI Member
Customer advisory board regarding the Oracle Solution Suite will be
consistent with Oracle public statements to Oracle's Customer
advisory board.
2.3.6 Attendance. ISI Member agrees that its President (or his/her
designee) shall attend (a) all meetings of the Executive Committee;
and (b) all Oracle Customer advisory board meetings.
2.3.7 Expenses. Each party shall bear its own costs incurred in the
performance of Executive Committee duties. The parties intend to
equitably distribute Executive Committee meetings geographically so
as not to burden ISI Member, Oracle, or any ISI Co-Member unduly
with travel-related expenses.
2.4 PUBLICITY
Neither Party shall disclose to any third party the pricing or
royalties or any other details of this Agreement without the specific
prior written approval of the other party, which approval shall not be
unreasonably withheld, except (i) for a mutually agreed-upon joint
press release to be issued by the parties relating to the subject
matter of this Agreement, (ii) as required by law in order to enforce
its rights under this Agreement, or (iii) to the Securities and
Exchange Commission (the "SEC") if, in the reasonable written opinion
of such party's counsel, such disclosure is required by statute or
rules and regulations of the SEC, provided that the disclosing party
shall make such written opinion available to the other party a
reasonable period of time before the disclosure and shall timely apply
to the SEC for a confidential treatment of the economic terms of this
Agreement and any other terms counsel for the other party reasonably
requests in writing to be a part of such application. Neither Party
shall issue any press release naming the other party without the other
party's prior approval, nor shall either party issue a formal public
statement using a Customer's name without the Customer's prior written
consent. ISI Member may not issue any formal public statement
concerning the Oracle Solution Suite or any transaction involving the
Oracle Solution Suite without Oracle's prior written consent.
Notwithstanding the foregoing or any provision of this Agreement to the
contrary, ISI Member shall have the right in the event of a potential
sale of a majority of ISI Member's outstanding voting shares and/or
substantially all of its assets to a third party to disclose the terms
of this Agreement to such third party (the "Receiver") without
obtaining Oracle's prior written approval, provided that the Receiver
shall, prior to receiving the disclosure from ISI Member, execute a
nondisclosure agreement with ISI Member containing provisions governing
nondisclosure at least as restrictive as those contained in this
Agreement (including but not limited to the provisions of this Section
2.4).
2.5 DISPUTE RESOLUTION
In the event of a dispute between the parties concerning the subject
matter of this Agreement, the matter shall be referred to the
Relationship Managers who shall meet for the purpose of endeavoring to
resolve such dispute or negotiate for an adjustment to such provision.
If they cannot resolve the dispute to the parties' mutual satisfaction
within 30 days after the dispute has been referred to them, then they
shall refer
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the matter to each party's applicable Vice President. If they cannot
resolve the dispute to the parties' mutual satisfaction within 30 days
after the dispute has been referred to them, then they shall refer the
matter to the Executive Committee, which shall render a decision on the
matter within 30 days. No formal proceedings for judicial resolution of
such dispute, except for the seeking of equitable relief, may begin
until the dispute resolution procedure has been elevated to the
Executive Committee, and the Executive Committee in good faith
concludes, after a good faith attempt to resolve the dispute, that
amicable resolution through continued negotiation does not appear
likely.
ARTICLE III - ORACLE SOLUTION SUITE DEVELOPMENT
3.1 GENERAL DEVELOPMENT RESPONSIBILITIES
3.1.1 Primary Commercial Releases. Each party shall provide the primary
commercial releases of its respective Programs for inclusion in the
Oracle Solution Suite.
3.1.2 Development-Related Costs. Each party shall bear all costs incurred by
it in the course of performing its development responsibilities
hereunder.
3.1.3 Development Cooperation Guidelines. The parties shall use commercially
reasonable efforts to comply with the guidelines set forth in Exhibit A
(Development Cooperation Guidelines) hereto.
3.1.4 Reasonable Efforts and Assistance. Each party shall at all times use
commercially reasonable efforts, and provide reasonable assistance to
the other (and ISI Co-Members), to accomplish the Oracle Solution Suite
development objectives described in this Agreement and the Target
Market Addendum (including the Development Plan).
3.1.5 Responsibilities Conditional On Other Party's Or ISI Co-Member's
Performance Or Assistance. Each party shall provide such assistance to
the other as may reasonably be required to enable the other to fulfill
its responsibilities hereunder. Neither party shall be liable for its
failure to perform any of its obligations hereunder to the extent that
failure was caused by the other party's or an ISI Co-Member's failure
to complete a development commitment or provide reasonably required
assistance on which the first party's performance was conditional.
3.1.6 Review of Future ISI Member Program / Oracle Solution Suite
Development. Notwithstanding anything to the contrary in this
Agreement, each party agrees (a) that it shall invite the other party
to its senior management meetings that relate to future development
with respect to such party's programs that are part of the Oracle
Solution Suite and only as such development relates to the relationship
between the parties' programs, pursuant to the Development Plan or
otherwise, and (b) that the invited party shall have the opportunity to
review and contribute suggestions to such development.
3.2 TECHNOLOGY AND ARCHITECTURE COMPLIANCE
3.2.1 ISI Member Responsibilities. Oracle is currently in the process of
developing standards related to internet computing, currently known as
Oracle's Network Computing Architecture ("NCA"), which involve the use
of CORBA interfaces.
a. ISI Member shall use commercially reasonable efforts to conform ISI
Member Programs (with the exception of (i) the Retek Demand
Forecasting module when such module is running on the Accumate
database product and (ii) the Retek Data Warehouse module when
such module is utilizing the MicroStrategy, Inc. "front-end")
and Critical Deliverables to Oracle's NCA standards.
b. ISI Member shall conform and thereafter maintain the ISI Member
Programs current with the look and feel and common data model of
the Oracle Programs (with the exception of (i) the Retek Demand
Forecasting module when such module is running on the Accumate
database product and (ii) the Retek Data Warehouse module when such
module is utilizing the MicroStrategy, Inc. "front-end").
c. ISI Member must adapt the user interfaces of the ISI Member
Programs to the Oracle and third party development tools specified
on Exhibit B (Acceptable Oracle and Third Party Tools) hereto, as
such exhibit may be amended in writing by the parties from time to
time. ISI Member may use any development tools it
chooses to develop back-ends of the
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ISI Member Programs, provided such tools shall be subject to
Oracle's approval if the tools being used by ISI Member are
resulting in performance degradation.
d. Oracle acknowledges that, as of the Effective Date, the Retek
Merchandising System product meets the requirements set forth
in subsections a and b of this Section 3.2.1. ISI Member agrees
that it shall continue to conform and maintain such product in
accordance with subsections a and b of this Section 3.2.1 and
Oracle acknowledges that ISI Member shall be free to market,
license and distribute such modified product during and after
the term of this Agreement.
3.2.2 Oracle Responsibilities. Oracle shall submit to the Development
Manager technology and architecture standards for the Oracle
Solution Suite.
3.3 INTEGRATION WITH UPDATES; RELEASES
3.3.1 ISI Member shall use commercially reasonable efforts to integrate
the ISI Member Programs (and Updates thereto) with any Updates to
the Oracle Programs so that the integrated version of the ISI
Member Programs are available in production release at the same
time as the Update to the Oracle Programs. Oracle shall provide
ISI Member with reasonable assistance to allow ISI Member to
complete the integration of Updates. In addition, Oracle shall
provide ISI Member with reasonable amounts of time to complete the
integration of Updates. ISI Member shall use commercially
reasonable efforts to make upgraded releases of the ISI Member
Programs, compatible with releases of Oracle Programs designated
in the Development Plan, commercially available within 90 days
after first commercial availability of such upgraded release of
the ISI Member Program. In addition, ISI Member shall use commer-
cially reasonable efforts to integrate the ISI Member Programs
with upgraded releases of Oracle Programs designated in the
Development Plan and make such commercially available within 90
days after commercial availability of the designated Oracle
Program releases (excluding Oracle Program releases consisting
solely of patches and fixes). Following the date one year from
the Effective Date of this Agreement, Oracle and ISI Member shall
meet to review that ISI Member has made substantial progress in
the integration of the ISI Member Programs towards (a) entry of
data by a Customer not more than once and (b) the ability of a
Customer to upgrade to the Oracle Solution Suite component by
component.
3.3.2 Notwithstanding anything to the contrary in this Agreement
(including the Development Plan attached to the Target Market
Addendum), the parties agree that they shall use commercially
reasonable efforts to adhere to the following: the parties shall
set forth in revised Development Plans (mutually agreed to by the
parties from time to time by written agreement) a product feature
summary outlining the functionality intended to be included in the
versions of the Oracle Solution Suite specified. Included with
such product feature summary shall be a schedule of estimated
dates for release of the versions of the Oracle Solution Suite
specified. If, at the time of preparation for any release of a
version of the Oracle Solution Suite (each, a "Pending Suite
Release"), ISI Member's version of the ISI Member Programs does
not meet the required specifications for such programs as set
forth in the product feature summary for the relevant Pending
Suite Release, then Oracle shall have the right to release the
Pending Suite Release with the previously released version of the
ISI Member Programs. When ISI Member's version of the ISI Member
Programs does meet the required specifications for such programs
as set forth in the product feature summary for the relevant
Pending Suite Release, then Oracle may thereafter release such
version of the ISI Member Programs in a "prime" release following
the relevant Pending Suite Release but prior to the next version
of the Oracle Solution Suite scheduled on the product feature
summary.
3.4 PROGRAM COMPETITIVENESS
If at any time Oracle believes that any ISI Member Program or ISI Member
believes that any Oracle Program is inferior in any material respect to
any competing third-party product, the party so believing may commission,
at its expense, a review of the other party's allegedly inferior program
by three (3) industry analysts, one of which will be selected by ISI
Member, one of which will be selected by Oracle, and one of which will be
selected by agreement of ISI Member and Oracle. If at least two (2) of
such three
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(3) industry analysts agree in writing that such program is inferior in
any material respect to a competing third-party product, the commissioning
party shall so notify the other party in writing and, within sixty (60)
days after such notice, the other party shall deliver to the commissioning
party a detailed written plan for correction of such deficiency(ies).
After agreement on such plan by the parties, the non-commissioning party
shall have one hundred eighty (180) days to correct the deficiency(ies)
pursuant to the plan, subject to acceptance by the commissioning party. In
the event the non-commissioning party objects to the terms of such written
plan for correction and fails to materially comply with its obligations
under such plan, the other party shall be entitled to terminate this
Agreement and the provisions of Section 9.3 will apply; provided that,
such failure shall not be deemed a material breach of this Agreement. Any
dispute arising under this Section 3.9, including any dispute over the
acceptability of a plan or deliverable required under this Section, shall
be referred to dispute resolution under Section 2.5 (Dispute Resolution).
3.5 NEW DEVELOPMENT COMMITMENTS
In the event Oracle believes that it is appropriate that a modification,
enhancement, localization or extension (which is not specified in the
Development Plan) be incorporated into the supported ISI Member Program,
then:
a. ISI Member shall have the right to undertake such development
commitment pursuant to an amendment to the Development Plan.
b. If ISI Member elects not to undertake such development
commitment, and such modification, enhancement, localization or
extension goes to the core ISI Member Program and cannot readily be
separated from such Program without requiring re-coding of any
portion of the Program, then Oracle, only with ISI Member's prior
written consent and subject to the provisions of this Agreement
related to ownership, may develop or fund development of such
modification, enhancement, localization or extension to ISI Member
Program and license it to existing and prospective Customers. In
the event ISI Member provides such consent and Oracle performs or
funds such development, Oracle shall be entitled to recover its
investment in such development [ * ]. Oracle shall have the right
to offset such amounts against the sublicense and technical support
fees payable to ISI Member hereunder; provided, however, that the
rate of such offset shall be as agreed to by the parties in a
schedule at the time ISI Member provides consent to Oracle for the
relevant development commitment.
c. If ISI Member elects not to undertake such development commitment,
and such development (i) is a "bolt-on" which can readily be
separated from the ISI Member Program and (ii) does not contain the
same functionality of the ISI Member Program(s) which it modifies,
localizes, enhances or extends, then Oracle, without ISI Member's
consent, (x) shall have the right to develop such development to
the ISI Member Program, (y) shall retain ownership of the
Intellectual Property Rights in such bolt-on, and (z) shall have
the right to license it to existing and prospective Customers. In
the event that the creation of the foregoing bolt-on by Oracle
requires the creation of an application programming interface
("API") or the creation of changes to an ISI Member Program, then
Oracle shall so notify ISI Member and ISI Member agrees at its own
expense to use commercially reasonable efforts to create the
necessary API or to create the changes to the applicable ISI Member
Program. ISI Member shall own all Intellectual Property Rights in
the API and the changes made to the ISI Member Program. If such
development (i) is a "bolt-on" which can readily be separated from
the ISI Member Program but (ii) contains the same functionality of
the ISI Member Program(s) which it modifies, localizes, enhances or
extends, then, prior to Oracle developing such bolt-on, Oracle
shall first offer to ISI Member the right to develop such
development to the ISI Member Program. If ISI Member undertakes
such development commitment, ISI Member shall retain ownership of
the Intellectual Property Rights in such bolt-on. If ISI Member
elects not to undertake such development commitment then Oracle
(x) shall have the right to develop, (y) shall retain ownership of
the Intellectual Property Rights in such bolt-on, and (z) shall
have the right to license it to existing and prospective Customers.
In the event that the creation of the foregoing bolt-on by Oracle
requires the creation of an API or the creation of changes to an
ISI Member Program, then Oracle shall so notify ISI Member and ISI
Member agrees at it own expense to use commercially reasonable
efforts to
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create the necessary API or to create the changes to the applicable
ISI Member Program. ISI Member shall own all Intellectual Property
Rights in the API and the changes made to the ISI Member Program.
In the event Oracle exercises its right in accordance with the
foregoing and ISI Member develops such development to the ISI
Member Program for Oracle at Oracle's expense, then Oracle shall be
entitled to recover its investment in such development [ * ].
Oracle shall have the right to offset such amounts against the
sublicense and technical support fees payable to ISI Member
hereunder; provided, however,that the rate of such offset shall be
as agreed to by the parties in a schedule at the time ISI Member
elects not to undertake such development commitment.
3.6 RIGHT TO ADD NEW ISI MEMBER PROGRAMS
If either party makes generally available after the Effective Date any
software which is not listed in a Target Market Addendum and which the
parties agree falls within the scope of business functionality or
requirements addressed under such Target Market Addendum, such software
shall be added to that Target Market Addendum unless the other party
objects. The addition of such software shall be subject to the sublicense
fee provisions of this Agreement. The party adding the software shall
promptly deliver to the other all materials required under Section 7.2
(Development, Technical Support, Training, Demonstration, Consulting
License To Oracle), and the parties shall promptly amend the Development
Plan and Sales Plan accordingly. Upon addition to the Target Market
Addendum of any such software, if such software is software of the ISI
Member, then such software shall be deemed "ISI Member Programs" for all
purposes of this Agreement and all provisions of this Agreement shall
automatically apply to such software, except that Exhibit J shall be
amended upon addition of the software to the target Market Addendum to
provide the applicable minimum sublicense fee for such software.
3.7 STATEMENTS OF WORK
In implementing the development activities contemplated by the parties
under the Development Plan set forth in the Target Market Addendum, the
parties agree to use statements of work. The parties shall specify in each
such statement of work provisions such as, but not limited to, the scope
of development activities for the relevant development project, the
parties' personnel who will manage the relevant development project and
the time frame for completion of the relevant development project. A form
of Statement of Work is attached hereto as Exhibit C.
ARTICLE IV - SALES COOPERATION
4.1 SALES MODEL
4.11 Definitions.
a. Joint Sale. A "Joint Sale" means a sale in which Oracle or a
Distributor provides an account manager, and ISI Member
provides an application sales representative and an application
sales consultant for the ISI Member Program. Oracle or its
Distributor will manage, lead and be the single point of
Customer contact for all Joint Sales.
b. Supported Sale. A "Supported Sale" means a sale in which Oracle
or a Distributor provides an account manager, an application
sales representative and an application sales consultant, and
ISI Member provides technical assistance for the ISI Member
Program. In the case of excessive Customer requests, the level
of technical assistance shall be determined jointly by the
parties. Oracle or its Distributor will manage, lead and be the
single point of Customer contact for all Supported Sales. The
parties intend that the Supported Sale model reflect Oracle's
attainment of the ability to sell licenses for and demonstrate
the Oracle Solution Suite in a self-sufficient manner.
4.1.2 Designation of Sales as Joint Sales or Supported Sales. All
sublicenses of an ISI member Program by Oracle or a Distributor
shall be deemed Joint Sales unless (a) the parties agree to move to
the Supported Sales model as such move is described below or (b)
the parties agree otherwise on a case by case basis in writing
(e.g., letter, email, etc.). At any time after the Effective Date
of this Agreement, ISI Member may notify Oracle in writing that ISI
Member
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desires to move to a Supported Sales model. If Oracle agrees in
writing to such a move, then on and after the "move" date specified
in Oracle's notice (a) all sublicenses of an ISI Member Program by
Oracle or a Distributor shall be deemed Supported Sales, (b) there
shall be no exceptions except by advance written agreement of the
parties and (c) ISI Member shall not be required to provide
application sales representatives or application sales consultants
for the ISI Member Program. If Oracle does not agree to such a
move, then all sublicenses of an ISI Member Program by Oracle or a
Distributor shall remain deemed Joint Sales. In the Supported Sales
model, unless the parties agree otherwise (including any agreement
on a different royalty payment for the applicable transaction) on
a case by case basis in writing (e.g., letter, email, etc.), ISI
Member shall not be required to provide application sales
representatives or application sales consultants for the ISI Member
Program.
4.2 ORACLE SOLE POINT OF CUSTOMER CONTACT
The parties agree that, in order to promote consistency and minimize the
number of sales calls on each Customer, Oracle shall be the sole point of
Customer contact during the initial sales process for all Oracle Solution
Suite licenses, including all ISI Member Program licenses for use with the
Oracle Solution Suite, in the Target Market. Oracle shall be the sole
point of Customer contact for all technical support, consulting and
training and education services in connection with such licenses. ISI
Member may contact a Customer after the initial sales process and may sell
any of ISI Member's products and services (including the ISI Member
Programs) directly to that Customer without the consent of, or liability
to, Oracle.
4.3 SALES FORCE QUOTA/COMPENSATION
Each party shall assign revenue quotas to its sales force. The
compensation plan used by each party for its sales force (for both
licences and the first year of Technical Support services) shall neither
favor nor disfavor sales by Oracle of the Oracle Solution Suite with
respect to other products sold or licensed by Oracle. ISI Member will
implement a compensation plan that complies with the foregoing sentence
within sixty (60) days of the Effective Date of this Agreement.
4.4 RULES OF ENGAGEMENT
Notwithstanding any provision to the contrary in this Agreement, the
parties agree to abide by the following rules of engagement:
a. Jointly Pursued Deals That End Up Being Licensed To a Customer by
ISI Member. If, after the parties have pursued a Customer as a
Joint Sale (including having performed a joint entry presentation
to the applicable Customer), the Customer decides to license the
ISI Member Program(s) from ISI Member, Oracle agrees that ISI
Member may license the applicable ISI Member Program(s) to such
Customer only after following the provisions of Section 4.4.b below
(Disengagement). After ISI Member has followed the provisions of
such section, and if the applicable Customer still wants to license
the ISI Member Program(s) from the ISI Member, then ISI Member
shall have the right to license the applicable ISI Member
Program(s) to such Customer provided that ISI Member pay to Oracle
a sublicense fee based upon the Joint Sales model [ * ] according
to the payment terms of the BAP Agreement (as defined below); or,
in lieu of payment, if the parties agree, Oracle may offset such
amount(s) against sublicense fees owed by Oracle to ISI Member
under this Agreement. For purposes of this Section, "net customer
license fees" means license fees actually received by ISI Member
from the customers described in this Section 4.4.a for licenses of
the ISI Member Programs, net of (i) any return adjustments (which
shall not include returns made by customers more than one year
following the date of the original license to the applicable
customer) and (ii) sales, use or other taxes paid.
b. Disengagement. If, after the parties have pursued a Customer with
Oracle in the managing/lead position during the potential
transaction, the Customer decides to license the ISI Member
Program(s) from the ISI Member, prior to ISI Member licensing the
applicable ISI Member
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Program(s) to such Customer, ISI Member agrees to make good faith
efforts to first set up a meeting among Oracle, ISI Member and the
Customer to discuss with the Customer the value of Oracle's
participation. If the Customer does not want to attend a meeting
with Oracle and ISI Member, or, if after the meeting the Customer
still wants to license the ISI Member Program(s) from the ISI
Member, then ISI Member shall have the right to license the
applicable ISI Member Program(s) to such Customer provided that ISI
Member pay to Oracle a sublicense fee based upon the Joint Sales
model [ * ] according to the payment terms of the BAP Agreement (as
defined below); or, in lieu of payment, if the parties agree, Oracle
may offset such amount(s) against sublicense fees owned by Oracle to
ISI Member under this Agreement. Notwithstanding any other provision
in this Section, in the event that Oracle is not providing Technical
Support services for the ISI Member Program(s) to such Customer,
then ISI Member shall pay to Oracle a sublicense fee based upon the
Joint Sales model [ * ] according to the payment terms of the BAP
Agreement or, in lieu of payment, if the parties agree, Oracle may
offset such amount(s) against sublicense fees owed by Oracle to ISI
Member under this Agreement. In the event the parties have pursued a
Customer as a Joint Sale and the sales cycle has not yet moved to
Step 4 or beyond as further described on Exhibit P hereto and the
parties have completed the disengagement process described above,
ISI Member shall not be obligated to pay to Oracle any sublicense
fee if the Customer licenses the ISI Member Program(s) from the ISI
Member.
c. Joint Planning and Communication. In addition to other meetings
between the parties as set forth in this Agreement and the relevant
Target Market Addendum, Oracle and ISI Member agree to a scheduled
sales planning calendar (i.e., at least bi-weekly) to ensure that
all opportunities are properly addressed and any issues are raised
and dealt with quickly. Oracle will provide detailed deal updates as
a part of the standard forecasting process. The heads of sales in
both parties' organizations will lead this effort. Oracle and ISI
Member intend to compensate their sales organizations in a manner
that will effectuate the intent of the provisions of this Section
4.4. The parties will mutually agree to a list of customers that ISI
Member may pursue without involvement of Oracle.
ARTICLE V -- SERVICES AND TRAINING
5.1. SERVICES SUBCONTRACT AGREEMENT
Any cooperative provision of implementation services by the parties shall
be subject to the Services Subcontract Agreement attached as Exhibit D
(Services Subcontract Agreement) hereto, except as otherwise agreed by the
parties in writing. Such Services Subcontract Agreement is deemed executed
by virtue of execution of this Agreement. The parties may agree to attach
addenda to such Services Subcontract Agreement to address local country
legal issues where services are to be performed outside the United States.
5.2 METHODOLOGY
Oracle shall provide ISI Member with access to its Application
Implementation Method ("AIM"). Oracle grants to ISI Member a worldwide,
nontransferable, nonexclusive, royalty-free license to use AIM for all ISI
Member products both inside and outside the Target Market. Oracle considers
AIM to be highly confidential and to contain proprietary and trade secret
information of Oracle. In addition to ISI Member's obligations under
Section 11.1 (Nondisclosure), ISI Member agrees that AIM software and
documentation will be kept and used only at ISI Member's facilities and at
locations where ISI Member is providing implementation services to its
customers (including Oracle Solution Suite Customers).
5.3 TRAINING
As part of the Target Market Addendum, the parties shall develop a training
plan addressing curriculum and revenue sharing. In addition, ISI Member and
Oracle agree to work together to create integrated demonstrations within
sixty (60) days of the Effective Date for the purposes of demonstrating the
ISI
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Member Programs and the Oracle Programs to potential Customers of the
Oracle Solution Suite in the Target Market.
5.4 CONSULTING
Oracle's profit margin on each consulting engagement entered into for
implementation services for the Oracle Solution Suite when acting as a
prime contractor pursuant to a signed subcontract order between the
parties shall be [ * ]
ARTICLE VI - TECHNICAL SUPPORT
6.1 TECHNICAL SUPPORT FOR ORACLE SOLUTION SUITE
ISI Member shall provide second-line support to Oracle for the ISI Member
Programs at the services levels described in the Service Level Agreement
attached hereto as Exhibit E (Service Level Agreement). Oracle shall (a)
provide first-line support (as further described on Exhibit E) to
Customers for the Oracle Solution Suite (including the ISI Member
Programs) in accordance with Oracle's then-current Technical Support
policies, and route problems concerning the ISI Member Programs or other
ISI Member products which Oracle is unable to resolve quickly to ISI
Member for resolution; and (b) provide ISI Member with access to Oracle's
support practices and systems.
6.2 TECHNICAL SUPPORT FOR ISI MEMBER PROGRAMS
ISI Member shall provide Technical Support services for the ISI Member
Programs to Customers who license the ISI Member Programs directly from
ISI Member, and to Customers who acquire sublicenses for the ISI Member
Programs from Oracle, who request such services. Oracle shall have no
obligation to provide Technical Support services for any ISI Member
products except the ISI Member Programs which are sublicensed to Customers
by Oracle and for which those Customers request Technical Support services
from Oracle.
6.3 BUG FIXES
ISI Member shall provide bug-fixes and patches for the ISI Member Programs
in a manner consistent with mutually agreed support practices and systems.
Oracle shall provide bug-fixes and patches for the Oracle components of
the Oracle Solution Suite in a manner consistent with Oracle's
then-current support practices and systems.
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6.4 INTERNAL DEVELOPER TECHNICAL SUPPORT
During the term of this Agreement, Oracle shall provide Silver Technical
Support services for the Oracle Programs to ISI Member internal
development personnel, and ISI Member shall provide Silver Technical
Support services (or ISI member equivalent support offering) for the ISI
Member Programs to Oracle internal development personnel, in connection
with Oracle Solution Suite development activities. ISI Member shall
designate one (1) support person and one (1) developer as its sole liaison
and Technical Support Contact. Oracle shall designate one (1) support
person and one (1) developer as its sole liaison and Technical Support
Contact. Each party shall notify the other whenever its designated
Technical Support Contact responsibilities are transferred to another
developer. For any Technical Support Updates to the Oracle Programs or ISI
Member Programs, each party shall ship to the other one Technical Support
Update copies for each operating system. Oracle's current Technical
Support Policies are attached hereto as Exhibit N (Oracle Technical
Support Policies).
6.5 EXTENDED SUPPORT
Each party shall provide Technical Support services for the release of its
respective programs included in the current release of the Oracle Solution
Suite as well as for the release just prior to the current release.
Technical Support for the prior release shall be provided for a minimum of
three years from the date that the current release is made available. For
example, the parties shall support product release number 2.2 at a minimum
for a period of three years following the release of product release
number 2.3. Nothing in this Section shall limit Oracle's right to provide
Technical Support services for the Oracle Solution Suite under the terms
of this Agreement.
ARTICLE VII - LICENSES GRANTED
7.1 LICENSE TO ISI MEMBER
Oracle shall license Oracle Programs to ISI Member for the purposes of
development and marketing support as specified in the Business Alliance
Program Agreement between the parties dated October 28, 1996 (the "BAP
Agreement"). Oracle grants to ISI Member a nontransferable license to
reproduce, install and use the Oracle Programs and the ISI Co-Member
Programs, including Updates for both of the foregoing, for the purpose of
enabling ISI Co-Member to perform its technical support responsibilities
under this Agreement.
7.2 DEVELOPMENT, TECHNICAL SUPPORT, TRAINING, DEMONSTRATION, CONSULTING
LICENSE TO ORACLE
ISI Member shall deliver to Oracle promptly after the Effective Date a
complete copy of the Object Materials, Source Materials, Developer
Materials and Documentation for ISI Member Programs to be used by Oracle
solely in accordance with the terms and conditions of this Agreement. ISI
Member shall use commercially reasonable efforts to deliver to Oracle a
complete copy of any Update of an ISI Member Program, including a complete
set of the Object Materials, Source Materials, Developer Materials and
Documentation for such Update, thirty (30) days before any beta release or
ninety (90) days before any production release to a third party of such
Update (whichever is earlier). Subject to Oracle's compliance with the
terms and conditions contained in Sections 7.2, 7.3 and Article VIII, ISI
Member grants to Oracle:
a. a worldwide, royalty-free, non-exclusive right and license to
execute, copy, reproduce, display, perform, modify, develop,
translate, create derivative works based on or otherwise use,
change and/or maintain the Source Materials and Developer Materials
solely for the purposes of (i) integrating and testing the ISI
Member Programs with the Oracle Programs to create the Oracle
Solution Suite, (ii) subject to the provisions of Section 7.9
below, creating customization for Customers under consulting
agreements, and (iii) providing Technical Support services in
accordance with the provisions of this Agreement; and
b. a worldwide, royalty-free, non-exclusive, nontransferable right and
license to execute, copy, reproduce, display and perform the Object
Materials solely for the purpose of enabling Oracle to perform
demonstrations (and allowing its Distributors to demonstrate) the
ISI Member Programs
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in conjunction with sales presentations for the Oracle Solution
Suite, to provide training in accordance with the Training Plan
contained in the Target Market Addendum and to provide education
services in accordance with Section 8.3.
7.3 SUBLICENSING LICENSE
7.3.1 Nonexclusive Right to Sublicense ISI Member Programs Throughout
Territory. Subject to Oracle's compliance with the terms and
conditions contained in Sections 7.2, 7.3 and Article VIII, ISI
Member grants to Oracle a worldwide, nonexclusive, nontransferable
license to market, reproduce and grant sublicenses for the ISI
Member Programs (Including Documentation therefor) solely (a) as
part of the Oracle Solution Suite or (b) as a Point Solution solely
in those instances where Oracle reasonably believes that the
Customer will purchase a license for more than one module of the
Oracle Solution Suite. If ISI Member believes at any time that
Oracle has sublicensed the ISI Member Programs as a Point Solution
to an entity that does not intend to license the Oracle Solution
Suite, the parties shall work diligently and in good faith to
resolve the dispute in accordance with Section 2.5 (Dispute
Resolution) (in no event shall ISI Member raise this Issue with a
Customer).
7.3.2 Nonexclusive Right to Sublicense Others ISI Member Products
Throughout Territory. If ISI Member approves in advance via written
document (e.g., letter, email, etc.), ISI Member grants to Oracle a
nonexclusive, nontransferable license to market, reproduce and
grant sublicenses for ISI Member products (including documentation
therefor) other than the ISI Member Programs throughout the
Territory for use in all operating environments for which such ISI
Member products are available, provided such sublicensing right
shall apply only in cases where a Customer or potential Customer
has specifically requested the right to acquire a license for such
ISI Member products directly from Oracle. Any such sublicenses
shall be subject to the terms of this Article and of Article VIII
(Fees) to the extent relevant for the purpose of Oracle's
sublicensing and provision of technical support services to the
applicable Non-Target Customer, unless otherwise agreed to by the
parties in writing.
7.3.3 Trial Sublicenses. ISI Member grants to Oracle non-exclusive,
nontransferable license to grant, at no charge, trial sublicenses
so that Oracle's prospective Customers may have the opportunity to
evaluate the ISI Member Programs, consistent with Oracle's policies
for granting trial licenses for its own applications programs.
Oracle's standard policy is to offer 30-day trial licenses under
Oracle's standard Trial License Agreement. Under such standard
agreement, at the end of the trial term the prospective Customer
must either purchase a license for the software or return the
software. If ISI Member is requested to provide consulting
services and/or technical support services for a trial license for
a Customer, ISI Member shall be compensated for such services
pursuant to the terms of this Agreement.
7.3.4 Shipment Right. Where Oracle or a Distributor grants a license to a
Customer for an ISI Member Program, Oracle or the Distributor shall
have the sole and exclusive right to ship copies of the ISI Member
Programs to such Customer pursuant to such license. ISI Member
retains all other rights to ship copies of ISI Member Programs.
Oracle shall be responsible for manufacturing all copies of ISI
Member Programs to be shipped by Oracle pursuant to this Section.
On an exception basis, ISI Member may ship copies of ISI Member
Programs to Customers pursuant to ISI Member Program licenses
granted by Oracle, subject to Oracle's prior written consent in
each instance; such consent shall not be unreasonably withheld
where Oracle is unable to ship copies of ISI Member Programs
quickly enough to meet a Customer's requirements.
7.3.5 Relicensing Right. If Oracle does not receive license fees from a
Customer (the "Defaulting Customer") due to the Defaulting
Customer's refund, Oracle shall have the right to sublicense the
same quantity of licenses to other Customers (the "Substitute
Customers") provided that (a) the total license fees payable by
such Substitute Customers is equal to the amount of the original
license fees due by the Defaulting Customer; (b) the Defaulting
Customer's license shall have been terminated by Oracle; and (c)
ISI Member is provided with information concerning such
relicensing. If Oracle sublicenses such Defaulting Customer
licenses to Substitute Customers for total license fees (the
"Actual Fees") greater than those fees would have been for the
Defaulting
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Customer (the "Original Fees"), then ISI Member shall receive the
applicable Sublicense Fee for the difference between the Actual
Fees and the Original Fees.
7.4 TERMS FOR DIRECT LICENSES TO CUSTOMERS
Each license by Oracle or its Distributions to a Customer for the Oracle
Solutions Suite or a Point Solution shall be governed by a written license
agreement conforming in all material respects with Oracle's then standard
Software License and Services Agreement and which agreement shall protect
ISI Member's proprietary rights to the same extent as the terms and
conditions of this Agreement.
7.5 DISTRIBUTORS
ISI Member grants Oracle the right to authorize Distributors to market,
sublicense and provide services in connection with the ISI Member Programs
in the Territory under the terms of this Agreement, including the right
to authorize their Distributors to exercise the same rights. Oracle agrees
to notify ISI Member when it authorizes Distributors to sublicense any of
the ISI Member Programs in the Territory under the terms of this Agreement
(including the name and territory of such Distributors) and ISI Member
shall be permitted to notify the owners of Other Party Materials of the
identities of the Distributors which Oracle authorizes to sublicense any
of the ISI Member Programs. In no case shall any Distributor have the
right to obtain Developer Materials for, or develop on, the ISI Member
Programs without ISI Member's prior written consent.
7.6 TRADEMARKS
Oracle and its Distributors are entitled to market, reproduce, distribute
and sublicense the ISI Member Programs under Oracle trademarks; provided,
however, that Oracle will, whenever the ISI Member Programs are
referenced, use those ISI Member trademarks and trade names relating to
the applicable ISI Member Programs in any advertising, marketing or
technical or other materials related to the ISI Member Programs. Such use
shall be in accordance with ISI Member's trademark guidelines, a current
copy of which is attached hereto as Exhibit M, and ISI Member shall
provide revised copies of such to Oracle when updated by ISI Member. ISI
Member grants to Oracle and its Distributors a nonexclusive, fully paid-up
license to use in connection with marketing, distributing, sublicensing
and providing training for the ISI Member Programs the product names and
trademarks used by ISI Member to identify the ISI Member Programs, and to
use such product names and trademarks with Oracle trademarks in a manner
that identifies such products as parts of the Oracle product set.
7.7 ARCHIVAL COPIES
Each party shall have the right to copy for archival or backup purposes
the software licensed to it under this Article VII (Licenses Granted);
no other copies shall be made without the licensing party's prior written
consent, except as expressly authorized herein. All titles, trademarks,
and copyright and restricted rights notices shall be reproduced in such
copies. All archival and backup copies of the software are subject to the
terms of this Agreement.
7.8 NO REVERSE ENGINEERING
Nether party shall cause or permit the reverse engineering, disassembly or
decompilation of any Object Materials licensed or sublicensed to it by the
other party under this Agreement.
7.9 OWNERSHIP
a. ISI Member shall retain all right, title and interest to the
Intellectual Property Rights in the ISI Member Programs. Oracle shall
retain all right, title and interest to the Intellectual Property
Rights in the Oracle Programs. Subject to the provisions of this
Section 7.9 and unless otherwise specified in this Agreement, the
parties intend that ISI Member shall own all right, title and
interest in and to any and all modifications, enhancement,
corrections or any other derivative works based on the ISI Member
Programs which are created by Oracle ("Oracle Enhancements").
Oracle hereby assigns all right, title and interest in and to any
Oracle Enhancements and the Intellectual Property Rights therein to
ISI Member.
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b. Notwithstanding any provision to the contrary in this Agreement,
the parties agree to the following: ISI Member agrees that, subject
to the terms and conditions of this Section, Oracle shall have the
right to assign to Customers all of ISI Member's right, title and
interest in and to all copyrights in the Contract Property (as
defined below) developed by ISI Member and/or Oracle under the
applicable subcontract order; (a) provided that, Customer shall be
expressly prohibited from distributing the Contract Property (in
its original form or as modified by Customer) and expressly limited
to using the Contract Property for internal purposes only; (b),
provided further that, ISI Member retain the irrevocable, worldwide
and freely transferable right to execute, copy, reproduce, display,
perform, modify, develop, translate, create derivative works and
distribute the Contract Property and works that are substantially
similar to the Contract Property, including similar in function,
structure, sequence, or organization of the Contract Property; and,
(c) provided further that, Oracle retain the worldwide,
non-transferable right to execute, copy, reproduce, display,
perform, modify, develop, translate, create derivative works and
distribute the Contract Property and works that are substantially
similar to the Contract Property, including similar in function,
structure, sequence, or organization of the Contract Property,
solely in context of providing customization services to individual
Customers. Oracle shall not be entitled to make the Contract
Property or substantially similar works generally commercially
available in the form of a product or otherwise. "Contract
Property" shall mean those deliverables developed solely for a
Customer by Oracle or ISI Member under a subcontract or other
order, except for any ISI Member Work(s) that may be developed or
that may be embodied in any deliverable under a subcontract or
other order. "ISI Member Work(s)" shall mean: (a) the ISI Member
Programs or any other software progam(s) and documentation owned or
distributed by ISI Member; (b) any ISI Member CASE-generated
subroutines that are used in developing or that are embodied in the
Contract Property (excluding any Customer confidential
information); and (c) any tools or utilities developed by or on
behalf of ISI Member. ISI Member shall retain all right, title and
interest, including all copyrights, in any ISI Member Work(s). ISI
Member agrees that Oracle shall have the right to grant to the
applicable Customer a non-exclusive, nontransferable, royalty free,
perpetual internal use license to use the specified ISI Member
Work(s) as incorporated into the Contract Property, and grants to
Oracle a worldwide, non-exclusive, non-transferable, royalty free,
perpetual license to use only internally and in the context of
providing customization and consulting services to Customers such
ISI Member Work(s) as incorporated into the Contract Property;
however nothing in this paragraph shall be construed to expand the
Customer's right to use Programs licensed to it under this
Agreement or another separate license agreement.
c. Oracle agrees that ISI Member shall have the right to access the
repository of Oracle Consulting Services ("OCS") for the purposes
of examining undocumented code related solely to the ISI Member
Programs and deposited therein by OCS consultants. In addition,
upon the request of ISI Member, Oracle shall make available to ISI
Member access to undocumented code created by OCS consultants for
specific Customers (which Customers shall be specified by ISI
Member to Oracle) even if such undocumented code has not been
placed in such repository.
7.10 THIRD PARTY MATERIALS
ISI Member shall have sole responsibility for payment of all royalties and
other charges with respect to third party materials (including without
limitation, Other Party Materials) included in the ISI Member Programs, if
any. Oracle shall have no obligation to pay or account for such royalties
or other charges. In the event Oracle creates a retail specific data
warehouse product as a substitute to the Retek Data Warehouse module
(utilizing the technology provided by MicroStrategy, Inc.) and offers such
substitute product to Customers in connection with any component or module
of the Oracle Solution Suite, Oracle shall promptly notify ISI Member.
Oracle acknowledges that in such case ISI Member may terminate by written
notice Oracle's right to grant sublicenses of the portion of the Retek
Data Warehouse module provided by MicroStrategy, Inc.
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7.11 LICENSE OF INTELLECTUAL PROPERTY RIGHTS
Each party grants to the other a nonexclusive, nontransferable and paid-up
license to all Intellectual Property Rights necessary to use the software,
documentation and other materials licensed by the granting party to the
other under this Agreement for the limited purposes stated herein; such
Intellectual Property Rights are included in the licenses granted under
this Agreement.
7.12 NO SERVICE BUREAU USE
Notwithstanding any provision to the contrary in this Agreement, Oracle
shall not have the right to use or sublicense the ISI Member Programs for
use in a service bureau without ISI Member's prior written consent. If
such consent is granted, the parties must also agree on the licensing
terms and pricing terms for such use.
ARTICLE VIII - FEES
8.1 SUBLICENSE FEES
8.1.1 Definition of Net Customer License Fees. "Net Customer License
Fees" shall mean license fees actually received by Oracle from its
Customers and from its Distributors for sublicenses of ISI Member
Programs, net of (i) any uplift charged by Oracle to cover its
warranty costs associated with the ISI Member Programs, (ii) any
return adjustments (which shall not include returns made by
Customers more than one year following the date of the original
sublicense to the applicable Customer) and (iii) sales, use or
other taxes paid. In the event that Oracle or its Distributor
grants sublicenses for ISI Member Programs with Oracle product
licenses for a single price, Net Customer License Fees shall equal
the total license fees actually received by Oracle for such
transaction (net of (i) any uplifts charged by Oracle to cover its
warranty costs associated with the ISI Member Programs, (ii) any
return adjustments and (iii) sales, use or other taxes paid)
multiplied by a fraction A/(A+B), where A equals the list price of
the ISI Member Programs sublicensed separately and B equals the
list price of the Oracle products. If license fees for the ISI
Member Programs are not distinguishable from the license fees for
Oracle products that are part of the deal, the Net Customer License
Fees for the ISI Member Programs shall be based on the fee
allocation agreed to by Oracle and the Customer for the products
specified in the deal or on the fee allocation made by Oracle's
internal procedures, provided such allocation reasonably reflects
the relative value of the ISI Member Programs and the Oracle
products. Oracle and ISI Member agree that (a) for the period
starting with the Effective Date and ending on the date one year
from the Effective Date, [*] of the license fees actually received
by Oracle from its Customers and from its Distributors for
sublicenses of ISI Member Programs unless otherwise agreed by the
parties in writing (e.g., letter, email, etc.) for a particular
transaction, and (b) for the period starting with the date one year
from date of the Effective Date and throughout the remainder of the
Term, [*] of the license fees actually received by Oracle from its
Customers and from its Distributors for sublicenses of ISI Member
Programs unless otherwise agreed by the parties in writing (e.g.,
letter, email, etc.) for a particular transaction.
8.1.2 Amount of Net Customer License Fees Payable
a. Joint Sales. For each sublicense by Oracle or a Distributor of
an ISI Member Program in the Target Market until the Supported
Model takes effect (if at all), which is deemed to be a Joint
Sale pursuant to Section 4.1 (Sales Model), (i) for the period
starting with the Effective Date and ending six months after
the Effective Date of this Agreement (the "Six-Month Period").
Oracle shall pay to ISI Member a Sublicense Fee equal to [*] of
the Net Customer License Fees Oracle receives for such
sublicense, (ii) for the period after the Six-Month Period,
Oracle shall pay to ISI Member a Sublicense Fee equal to [*] of
the Net Customer License Fees Oracle receives for such
sublicense. In no case, however, shall such Sublicense Fee be
less than the amount specified on Exhibit J (Minimum Sublicense
Fees), except as the parties may agree in writing (e.g.,
letter, email, etc. between Bob Tuttle or Gordon
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Masson for ISI Member and Jim Mattecheck or Mary-Lou Smulder
for Oracle) on a case-by-case basis.
b. Supported Sales. For each sublicense by Oracle or a Distributor
of an ISI Member Program after conversion to the Supported
Sales model pursuant to Section 4.1 (Sales Model), Oracle shall
pay to ISI Member a Sublicense Fee equal [*] of the Net
Customer License Fees Oracle receives for such sublicense. In
no case, however, shall such Sublicense Fee be less than the
amount specified on Exhibit J (Minimum Sublicense Fees), except
as the parties may agree in writing (e.g., letter, email, etc.
between Bob Tuttle or Gordon Masson for ISI Member and Jim
Mattecheck or Mary-Lou Smulder for Oracle) on a case-by-case
basis.
c. Pre-ISI Sales. Notwithstanding any other provision of this
Agreement (including without limitation Sections 8.1.2.a and b
above) for each sublicense by Oracle or a Distributor of an ISI
Member Program to the Pre-ISI Customers (defined below), Oracle
shall pay to ISI Member a Sublicense Fee equal to [*] of the
Net Customer License Fees and Net Customer Support Fees Oracle
receives for such sublicense. For purposes of this Section, the
"Pre-ISI Customers" are: (i) Family Dollar Stores, Inc., (ii)
British Petroleum, and (iii) NTUC. For purposes of this
Section, the term "Net Customer License Fees" shall not include
any uplift charge by Oracle.
d. Grandfathered Sales. During the period beginning with the
Effective Date and ending six (6) months from the Effective
Date (the "Grandfathered Period"), Oracle and its Distributors
shall not have the right to sublicense an ISI Member Program or
Program(s) to the Grandfathered Customers set forth on Exhibit
K (Grandfathered Customers). After the expiration of the
Grandfathered Period, Oracle shall have the right to sublicense
the ISI Member Programs to the Grandfathered Customers subject
to the terms of this Agreement. In the event that during the
Grandfathered Period a Grandfathered Customer or Customer(s)
wants to license the ISI Member Program(s) from Oracle instead
of from ISI Member, then Oracle shall have the right to
sublicense the applicable ISI Member Program(s) to such
Grandfathered Customer(s) pursuant to an Oracle license
agreement provided that Oracle pay to ISI Member a Sublicense
Fee equal [*] of the Net Customer License Fees Oracle receives
for such sublicense(s). Unless the parties agree otherwise on a
case by case basis in writing (e.g., letter, email, etc.), the
Sublicense Fee payable to ISI Member under this Section 8.1.2.d
shall be as specified above in this Section.
e. Change in Sublicense Fee. If ISI Member fails at any time after
the Effective Date of this Agreement to respond and provide to
Oracle any pre-sales assistance in response to a "qualified
lead request" (as such term is defined below) for such
assistance (including but not limited to the joint entry
presentation specified in Section 4.4) within one week of ISI
Member's receipt of the request, then notwithstanding any
provision of this Agreement to the contrary (including but not
limited to this Section 8.1), with respect to the transaction
for which ISI Member failed to provide the requested
assistance, Oracle shall pay to ISI Member a Sublicense Fee
equal [*] of the Net Customer License Fees Oracle receives for
the sublicense pursuant to that transaction. For the purpose of
this Section, "qualified lead request" shall mean the process
in the attached Exhibit P (Qualifying a Lead).
8.2 TECHNICAL SUPPORT FEES
8.2.1. Definition of Net Customer Support Fees. "Net Customer Support
Fees" shall mean fees actually received by Oracle from its
Customers and from its Distributors for Technical Support services
for ISI Member Programs, net of any cancellation adjustments and of
sales, use or other taxes paid. In the event that Oracle or its
Distributor sells Technical Support services for ISI Member
Programs together with Technical Support services for Oracle
products for a single price, Net Customer Support Fees shall equal
the total fees actually received by Oracle for Technical Support
for ISI Member Programs and Oracle products included in the
transaction (net of any cancellation adjustments and of sales, use
or other taxes paid) multiplied by a fraction A/(A+B),
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where A equals the list fee for the applicable level of Technical
Support for ISI Member Programs and B equals the list fee for the
applicable level of Technical Support services for the Oracle
products. If Technical Support fees for ISI Member Programs are not
distinguishable from Technical Support fees for the Oracle products
that are part of the deal, the Net Customer Support Fees for ISI
Member Programs shall be based on the Technical Support fee alloca-
tion agreed to by Oracle and the Customer for the products included
in the deal or on the Technical Support fee allocation made by
Oracle's internal procedures, provided such allocation reasonably
reflects the relative value of the Technical Support for ISI Member
Programs and the Technical Support for the Oracle products.
8.2.2 Amount of Net Customer Support Fees Payable. Oracle shall pay to
ISI Member an annual Technical Support Fee based on the Net
Customer Support Fees received by Oracle from such Customer for
such ISI Member Program(s). The amount of such Technical Support
fee shall be as follows:
a. Bronze. If the Customer purchases Bronze Technical Support
Services from Oracle for the ISI Member Program(s), then the
annual Technical Support Fee shall be [*] of the Net Customer
Support Fees received by Oracle in connection with such ISI
Member Program(s), but in no event less than [*] of the Minimum
Sublicense Fees specified on Exhibit J.
b. Silver. If the Customer purchases Silver Technical Support
Services from Oracle for the ISI Member Program(s), then the
annual Technical Support Fee shall be [*] of the Net Customer
Support Fees received by Oracle in connection with such ISI
Member Program(s) but in no event less than [*] of the Minimum
Sublicense Fees specified on Exhibit J.
c. Gold. If the Customer purchases Gold Technical Support Services
from Oracle for the ISI Member Program(s), then the annual
Technical Support Fee shall be [*] of the Net Customer Support
Fees received by Oracle in connection with such ISI Member
Program(s) but in no event less than [*] of the Minimum
Sublicense Fees specified on Exhibit J.
d. Other Packages. Where neither Bronze, Silver nor Gold Technical
Support services are available, and the Customer purchases a
different Technical Support package from Oracle for the ISI
Member Program(s), then the annual Technical Support Fee shall
be [*] of the Net Customer Support Fees received by Oracle in
connection with such ISI Member Program(s). Oracle's current
Technical Support Policies are attached hereto as Exhibit N
(Oracle Technical Support Policies).
e. Initial 180-Day Period. Notwithstanding anything to the
contrary in this Agreement, during the period beginning with
the Effective Date and ending six months from the Effective
Date (the "Initial Support Period"): if the Customer purchases
Technical Support Services from Oracle for the ISI Member
Program(s), then the annual Technical Support Fee shall be (i)
the applicable percentage specified above in this Section 8.2.2
(i.e., Sections 8.2.2.a and b) of the Net Customer Support Fees
received by Oracle in connection with such ISI Member
Program(s) plus [*] of the remaining percentage (for example,
with respect to Silver Technical Support Services, the annual
Technical Support Fee would be [*] of the Net Customer Support
Fees received by Oracle in connection with such ISI Member
Program(s) plus [*]. During the Initial Support Period the
parties may mutually agree upon a fee split for Technical
Support Services provided under Section 8.2.2 (c) and (d). At
the end of the Initial Support Period Oracle's and ISI Member's
Technical Support representatives (Randy Baker and Victor
Holysh, respectively, or their designates) shall meet to
determine whether or not the parties shall move to the payment
amounts set forth above in this Section 8.2.2 (i.e., Sections
8.2.2.a, b, c and d); provided, however, that if such
representatives (or their delegates) do not reach agreement
after good faith discussions, then starting on the day after
the end of the Initial Support Period, the amount of Technical
Support fee payable shall be as set forth above in this Section
(i.e., Sections 8.2.2.a, b, c and d).
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8.2.3 Ramping. Notwithstanding Section 8.2.2 (Amount of Net Customer
Support Fees Payable), where an agreement between Oracle and a
Customer permits the Customer to pay Technical Support Fees to
Oracle according to a ramped schedule, any Technical Support Fee
payable by Oracle to ISI Member for an applicable ISI Member
Program license shall be ramped accordingly. For purposes of this
Section, the term "ramped," as used to describe a payment schedule,
means that the amounts of such scheduled payments increased over
time.
8.2.4 Payment Terms. Each monthly payment under Section 8.5 (Payment,
Reporting, Relicensing) shall contain either all, one-half,
one-quarter, one-twelfth, or none of the annual Technical Support
Fee payable to ISI Member for each applicable the ISI Member
Program license, depending on whether the applicable Customer is
obligated to pay Oracle annually, semiannually, quarterly or
monthly for Oracle Technical Support services.
8.2.5 Bundled Sales. In the event that Oracle or its Distributor grants
sublicenses for ISI Member Programs with Oracle product licenses
and Technical Support Services for a single price, Oracle shall pay
ISI Member Technical Support Fees pursuant to this Section 8.2
unless otherwise agreed to in writing by the parties in advance.
8.3 EDUCATION/TRAINING FEES
a. ISI Member Training. For each ISI Member training class which
Oracle resells to a Customer, Oracle shall pay to ISI Member
eighty-five percent (85%) of the applicable fees for such class
as provided on Exhibit D hereto. Any ISI Member services hereunder
shall be subject to a subcontract order described in and the form
of which is attached to the Services Subcontract Agreement between
the parties (Exhibit D hereto).
8.4 SUBLICENSE FEE LIMITATIONS
No Sublicense Fee or other charge shall be payable by Oracle for any use
of the ISI Member Programs or other ISI Member products by Oracle for
product development or provision of consulting services, or for any use of
the ISI Member Programs or other ISI Member products by Oracle or its
Distributors for training; for demonstration licenses, trial licenses, or
marketing activities; or as back-up copies.
8.5 PAYMENT; REPORTING; RELICENSING
All fees payable described in this Article VIII shall be due and payable
within thirty (30) days after the last day of the month in which the
applicable Net Fees were received by Oracle. Within thirty (30) days of
the last day of each month, Oracle shall send ISI Member a report
detailing, for that month, the Sublicense Fees and Technical Support Fees
due to ISI Member under this Agreement as a result of Oracle's and its
Distributors' sublicensing activities under this Agreement.
8.6 RECORDS; AUDIT
Oracle shall keep accurate books of account and records pertaining to its
sublicense activities and revenues and the sublicense revenues from its
Distributors. No more than once during any twelve (12) month period, ISI
Member may, at its sole expense, employ an independent Certified Public
Accountant who is not compensated based on the results of the audit, and
who is acceptable to Oracle, to inspect such books of account and records
upon reasonable notice to Oracle, and at a reasonable time during normal
business hours for the purpose of verifying the Sublicense Fees and
Technical Support Fees payable to ISI Member pursuant to this Agreement.
Unless necessary to establish in a court of law the auditing party's
right to payment of Sublicense Fees or Technical Support Fees hereunder
(in which case the Certified Public Accountant shall request a protective
order), such Certified Public Accountant shall hold all information
obtained in strict confidence; shall not disclose such information to any
other person or entity (except ISI Member) without Oracle's prior written
consent; and shall not disclose to ISI Member any information regarding
Oracle's business other than any noncompliance by Oracle with the fee
payment provisions hereof.
If an audit reveals that Oracle has underpaid fees to ISI Member, Oracle
shall pay such underpaid fees to ISI Member within forty-five (45) days
after the end of the then-current month plus interest on such underpaid
fees at the then [*] for the period of time starting
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when such underpaid fees were owed to the time when such underpaid fees
are paid to ISI Member, if the underpaid fees exceed the greater of (a)
[*] of the Sublicense Fees and Technical Support Fees paid or (b) [*] then
Oracle shall also pay ISI Member's reasonable costs of conducting the
audit up to maximum of [*] notwithstanding anything to the contrary in
this Section.
8.7 CUSTOMER LICENSE FEE DISCOUNTS
Except with ISI Member's prior written consent, Oracle shall not agree
with a Customer in any transaction to a license fee discount that is
greater for ISI Member Programs than for Oracle Programs included in the
Oracle Solution Suite as part of the same transaction, where the discounts
are calculated as a percentage of Oracle's then-current list license fees
for the Oracle Solution Suite.
8.8 FREEDOM
This Article VIII (Fees) shall govern only the fees payable by Oracle to
ISI Member. Oracle and ISI Member shall each be free to determine
unilaterally the pricing of all products (including without limitation the
products described in this Agreement) and services that it provides
directly to its customers and distributors.
ARTICLE IX - TERM AND TERMINATION
9.1 INITIAL TERM
This Agreement shall become effective on the Effective Date and shall
remain in effect for three (3) years thereafter, unless sooner terminated
as specified below. This Agreement may be renewed by written agreement of
the parties for successive three (3) year terms. At the end of the second
year of each 3-year term, the parties shall jointly issue a memorandum of
intent indicating whether or not they intend to renew this Agreement for
an additional 3-year term. If a memorandum of intent is not jointly issued
by the parties at such time, the term of this Agreement shall end at the
end of the third year of the applicable term.
9.2 TERMINATION
9.2.1 Termination for Cause. If either party materially breaches its
obligations hereunder, then in addition to Oracle's termination
rights under the Target Market Addendum (including but not limited
to Section 6.d.iv.A (Failure to Deliver Critical Deliverables -
Termination)) and any other termination rights of the parties set
forth in this Agreement, the non-breaching party may terminate this
Agreement with written notice unless, within sixty (60) days from
the breaching party's receipt of written notice of such breach,
such breach has been cured, or in the case of a breach that cannot
with due diligence be cured within sixty (60) days, the breaching
party has commenced with curing the breach during such sixty (60)
day period and thereafter diligently prosecutes the same to
completion.
9.2.2 Causes. For purposes of this Section 9.2 only, "cause" shall
include but not be limited to:
a. Material breach of any material provision of this Agreement or
of any Target Market Addendum, including any exhibit thereto.
b. The filing of any voluntary or involuntary petition in
bankruptcy, or any similar law, by or against a party, which is
not dismissed within forty-five (45) days of filing.
c. An infringement by either party of a third-party intellectual
property right which impedes either party's ability to meet its
obligations under this Agreement with respect to the Oracle
Solution Suite or the ISI Member Programs, as specified in
Section 10.2 (Infringement Indemnity).
The parties shall endeavour to resolve any dispute over whether a
material breach or cause has occurred in accordance with Section
2.5 (Dispute Resolution).
9.2.3 Force Majeure. Neither party shall be liable to the other for
failure or delay in the performance of a required obligation if
such failure or delay is caused by a riot, fire, flood, explosion,
earthquake or other natural disaster, government regulation, or
other similar cause beyond such party's control, provided that such
party gives prompt written notice of such condition and resumes its
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performance as soon as possible, and provided further that the
other party may terminate this Agreement if such condition
continues for a period of one hundred eighty (180) days.
9.2.4 Other Right to Terminate. In addition to the other rights to
terminate set forth in this Agreement, either party shall have the
right to terminate this Agreement at the following times and under
the following conditions:
a. with respects to ISI Member:
i. if, at the end of the fourth calendar quarter following the
Effective Date, either (A) ISI Member's net license revenue
growth (as defined and calculated in accordance with the terms
and conditions set forth in Exhibit L (ISI Member Net Growth
and Profit Margin)) for such period has [*] as compared to ISI
Member's performance in the four calendar quarters immediately
prior to such period or (B) ISI Member's profit margin (as
defined and calculated in accordance with the terms and
conditions set forth in Exhibit L (ISI Member Net Growth and
Profit Margin)) for the four quarter period ending with the
fourth calendar quarter following the Effective Date [*];
ii. if, at the end of any calendar quarter after the fourth
calendar quarter following the Effective Date and prior to the
ninth calendar quarter following the Effective Date (the
"Second Termination Period"), either (A) ISI Member's net
license revenue growth for the applicable quarterly period has
not increased [*] as compared to ISI Member's performance in
the same calendar quarter of the previous year or (B) ISI
Member's profit margin for the applicable quarterly period is
less than [*]; provided, however, that with respect to the
termination right of ISI Member under this Section 9.2.4.a.ii.,
ISI Member shall only have the right to raise the issue of
termination based upon this Section with respect to two
quarters during the Second Termination Period;
b. with respect to Oracle:
i. if, at the end of one year period following the Effective Date
(A) the results of Oracle's 1999 fiscal year (ending May 1999,
"FY99") demonstrate that Oracle's FY99 reported net license
revenue received from Oracle's sublicenses of the ISI Programs
under this Agreement (net of sublicense fees paid to ISI Member
and other uplift charges specified in this Agreement) is less
than [*] license revenue received by Oracle from Customers); or
(B) the results of Oracle's FY99 demonstrate that Oracle's FY99
reported net license revenue received from Oracle's licenses of
Oracle Application program(s) to Customers who have purchased
prior to the applicable transaction or will purchase in the
applicable transaction the Oracle Retail Solution Suite is less
than [*]; or (C) Oracle's profit margin (as defined and
calculated in accordance with the terms and conditions set
forth in Exhibit O (Oracle Profit Margin)) for FY99 is less
than [*];
ii. if, at the end of any calendar quarter during the one year
period starting the date one year from the Effective Date and
ending the date two years from the Effective Date (the "Second
Year"), (A) the results of Oracle's 2000 fiscal year (ending
May 2000, "FY00") demonstrate that Oracle's FY00 reported net
license revenue received from Oracle's sublicenses of the ISI
Programs under this Agreement (net of sublicense fees paid to
ISI Member and other uplift charges specified in this
Agreement) is less than [*] in gross license revenue received
by Oracle from Customers); or (B) if the results of Oracle's
FY00 demonstrate that Oracle's FY00 reported net license
revenue received from Oracle's licenses of Oracle Application
program(s) to Customers who have purchased prior to the
applicable transaction or will purchase in the applicable
transaction the Oracle Retail Solution Suite is less than [*];
or (C) Oracle's profit margin (as defined and calculated in
accordance with the terms and conditions set forth in Exhibit O
(Oracle Profit Margin)) for FY00 is less than [*]; provided,
however, that with respect to the termination right of Oracle
under this Section 9.2.4.b.ii, Oracle shall only
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have the right to raise the issue of termination based upon
this Section with respect to two quarters during the Second
Year.
c. At the end of the Second Termination Period for ISI Member and
at the end of the Second Year for Oracle, the parties shall
decide on the standards for termination by each party under
this Section 9.2.4 for the remainder of the Term; provided,
however, that either party shall only have the right to
exercise its termination right under this Section with respect
to one quarter during the applicable termination period.
d. Upon termination by either party under this Section 9.2.4,
notwithstanding the provisions of Section 9.3.2, (x) Oracle
shall have the right to exercise the rights specified in
Section 9.3.2 for six (6) months after the termination date and
only with respect to a list of specified Customers (the
"Post-Termination List"), which list Oracle shall provide to
ISI Member within 45 days after the termination date; (y) the
parties shall share the sublicense fees for sublicenses of the
ISI Member Program(s) to Customers on the Post-Termination List
according to the revenue splits in effect at the time of the
applicable sublicense regardless of which party executes the
agreement with the applicable Customer during that six (6)
month period; and/or (Z) Oracle shall have the right to assign
any ISI Member Program warranties and/or ISI Member Program
technical support agreements outstanding with Customers to ISI
Member and ISI Member shall, in the event that Oracle takes the
foregoing action, fulfill the terms under Customer agreements
with respect to the ISI Member Programs.
9.2.5 Right to Terminate in Event of Merger or Acquisition. In addition
to the other rights of termination set forth in this Agreement,
Oracle shall have the right to terminate this Agreement in the
event that there is a transfer of ownership of a majority of the
outstanding voting shares and/or substantially all of the assets
of ISI Member to any third party.
9.2.6 Termination for Failure to Complete Target Market Addendum. In the
event the parties are not able, after good faith negotiations, to
agree on the terms and conditions of the Target Market Addendum
within ninety (90) days of the Effective Date, then either party
may terminate this Agreement without liability to the other party
by giving written notice of termination to such party. In such
event, the terms and conditions of Section 9.3 shall not apply.
9.3 RIGHTS UPON TERMINATION
In the event of termination or expiration of this Agreement:
9.3.1 Survival of Granted Sublicenses. All sublicenses of the ISI Member
Programs granted to Customers before termination by Oracle or its
Distributors shall survive and continue perpetually.
9.3.2 Continuing Right to Grant Sublicenses. Unless ISI Member
terminates this Agreement for cause, for a period of six (6) months
following the termination of this Agreement, Oracle shall continue
to have the right to sublicense the ISI Member Programs as part of
the Oracle Solution Suite, and shall continue to have all rights
hereunder reasonably necessary and ancillary to such sublicensing
rights. Such sublicensing by Oracle shall be subject to Oracle's
payment to ISI Member of the fee payable under the sales model
(Joint Sale or Support Sale) in effect at the time of termination.
9.3.3 Retention of ISI Member Object Materials for Customer Support.
Oracle shall retain indefinitely a license to use the ISI Member
Program Object Materials for the sole purpose of providing support
to Customers, subject to the terms of this Agreement as if it had
not been terminated.
9.3.4 ISI Member Provision of Technical Support Services. Until the
later of: (i) the third anniversary of termination, or (ii) the
expiration of all support commitments by Oracle for ISI Member
Programs undertaken prior to termination of this Agreement, ISI
Member shall continue to provide Technical Support services, as
specified in Article VIII (Technical Support), to Oracle customers
who have ordered Technical Support for the ISI Member Programs
directly from ISI Member, and shall continue to provide
second-line Technical Support services, as specified in Article
VIII (Technical Support), for Customers who have ordered Technical
Support for Oracle products directly from Oracle, subject to
Oracle's payment of Technical Support Fees to ISI Member as
provided in Section 8.2 (Technical Support Fees).
9.3.5 Retention of Developer Materials. If any condition described in
Section 9.3.5.a (Failure to Deliver Critical Deliverables), b
(Breach of Technical Support Obligations) or c (Dissolution,
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Receivership, Bankruptcy etc.) occurs and continues beyond the cure
periods (if any) described in such Subsections (or the Target
Market Addendum, as the case may be), Oracle may retain all of the
ISI Member Program Developer Materials then in Oracle's possession
for use solely for the purposes and duration and with respect to
those instances in which ISI Member has not fulfilled its
obligations, required to fulfill ISI Member's outstanding
development and/or technical support obligations, as applicable,
under this Agreement, subject to the terms and conditions of this
Agreement, including but not limited to Section 11.1
(Nondisclosure) and Section 4.9 (Ownership) and Section 9.4 (Effect
of Termination).
a. Failure to Deliver Critical Deliverables. If Oracle terminates
under Section 6.d.iv.A of the Target Market Addendum (Failure
to Deliver Critical Deliverables - Termination), Oracle may
retain and use such Developer Materials for the sole purpose of
completing any Critical Deliverables that have not been
delivered by ISI Member. Oracle shall return to ISI Member or
destroy the Developer Materials upon completion of all such
Critical Deliverables.
b. Breach of Technical Support Obligations. If ISI Member
breaches its obligation to provide Technical Support services
as described in Section 9.3.4 (ISI Member Provision of
Technical Support Services) in a manner consistent with Exhibit
E (Service Level Agreement) and Section 10.1.1.c (Services
Warranty), and such breach is not cured by ISI Member within
thirty (30) days of its receipt of notice of the breach, then
Oracle may retain and use such Developer Materials for the sole
purpose of providing support to Customers during the time
period specified in Section 9.3.4; provided, however, that with
respect to a breach by ISI Member with respect to a Severity
One Tar (as such term is defined in Exhibit E (Service Level
Agreement), Oracle shall have the right to take the actions
described above if such breach is not cured by ISI Member
within twenty-four (24) hours of its receipt of notice of the
breach. Oracle shall return to ISI Member or destroy the
Developer Materials at the end of such time period.
c. Dissolution, Receivership, Bankruptcy etc. Oracle may retain
such Developer Materials if any of the following events occur
and a reasonable person would conclude that such event would be
likely to cause ISI Member to materially breach this Agreement
or any Target Market Addendum; (i) any assignment of
substantially all of ISI Member's assets for the benefit of
creditors or the appointment of a receiver to take possession
of substantially all of ISI Member's assets, (ii) any
dissolution of or substantial attachment or execution of
judgment against ISI Member's assets, or (iii) the filing of
any voluntary or involuntary petition in bankruptcy, or any
similar law, by or against ISI Member which is not dismissed
within forty-five (45) days of filing. In such event, Oracle
may use such Developer Materials for the sole purpose of
completing any Critical Deliverables that have not been
delivered by ISI Member, and for providing support to Customers
during the time period specified in Section 9.3.4 (ISI Member
Provision of Technical Support Services). Oracle shall return
to the ISI Member or destroy the Developer Materials upon
completion of all such Critical Deliverables, or at the end of
the time period specified in Section 9.3.4, whichever is later.
9.4 EFFECT OF TERMINATION
Upon termination or expiration of this Agreement, all rights and
obligations of the parties under this Agreement shall cease, except as
provided in this Article. Termination of this Agreement shall not limit
either party from pursuing other remedies available to it, including
injunctive relief, nor shall such termination relieve either party of its
obligation to pay all fees that have accrued or are otherwise owed by it
to the other party under this Agreement prior to termination. The parties'
rights and obligations under Articles VIII (Fees), IX (Term and
Termination), X (Limited Warranty, Infringement Indemnity and Limitation
of Liability) and XI (General), and Sections 4.8 (No Reverse Engineering),
4.9 (Ownership) and 4.10 (Third Party Materials), as well as those other
Sections reasonably required to allow the parties to exercise their
post-termination rights hereunder, shall survive expiration or termination
of this Agreement.
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ARTICLE X - LIMITED WARRANTY, INFRINGEMENT INDEMNITY, AND LIMITATION OF
LIABILITY
10.1 LIMITED WARRANTIES AND EXCLUSIVE REMEDIES
10.1.1 Limited Warranties. Each party warrants its products and services
to the other as provided below:
a. Program Warranty. ISI Member warrants that each ISI Member
Licensed Program as delivered by ISI Member hereunder, and
Oracle warrants that each Oracle Program as delivered by Oracle
under the BAP Agreement, will perform the functions described
in the then current Documentation, and conform with all
relevant specifications in this Agreement and the addenda,
exhibits and attachments hereto, for the shorter of (i) three
(3) years or (ii) the warranty period Oracle provides to a
Customer under a license agreement.
b. Media Warranty. Each party warrants the tapes, diskettes or
other media to be free of defects in materials and workmanship
under normal use for 90 days from delivery to the other party.
c. Services Warranty. Each party warrants that its technical
support and consulting services will be performed consistent
with generally accepted industry standards. This warranty shall
be valid for 90 days from performance of service.
d. Millennium Warranty.
i. Without limiting any other warranty or obligations
specified in this Agreement, ISI Member warrants to
Oracle, and Customers as a third-party beneficiaries,
without time limitation, that the ISI Member Programs are
Millennium Compliant, as defined below,
ii. If any ISI Member Program is not Millennium Compliant,
Oracle shall have the right to replace, or allow a
Customer to replace, any non-compliant ISI Member Program
with a functionally equivalent Program that is Millennium
Compliant. If Oracle or a Customer elects to undertake the
foregoing option, ISI Member shall reimburse Oracle in
full for (a) the costs of any such substitute program
procured by Oracle, or procured by a Customer for which
Oracle must provide reimbursement, and (b) the costs
Oracle incurs in providing to or procuring for Customer
any and all consulting services required to fully install
and implement any such substitute program.
iii. "Millennium Compliant" means that at all times the ISI
Member Programs will fully comply with the following
definition of millennium compliance when configured and
used according to the then current documented
instructions. The definition of Millennium Compliance is
the ability to: (a) correctly handle date information
before, during and after 1 January 2000, accepting date
input, providing date output and performing calculation on
dates or portions of dates; (b) function according to the
then current Documentation, during and after 1 January
2000 without changes in operation resulting from the
advent of the new century, assuming correct configuration;
(c) where appropriate, respond to two digit date input in
a way that resolves the ambiguity as to century in a
disclosed, defined and predetermined manner; (d) store and
provide output of date information to in ways that are
unambiguous as to century; and (e) manage the leap year
occurring in the year 2000, following the quad-centennial
rule.
e. Authorship. ISI Member represents and warrants that the
certificate of authorship, attached hereto as Exhibit F is
complete and accurate.
f. Exceptions. The provisions of this Article X shall not apply to
any error or deficiency caused by (i) any party's modifications
to the ISI Member Programs (other than modification by ISI
Member or by a third party at ISI Member's request/direction);
(ii) operation of software other than the ISI Member Programs
(for example, operating system or database software) or any
hardware or other equipment; (iii) use of the ISI Member
Programs in conjunction with the user's data in a manner not
specified in the Documentation; or (iv) use of the ISI Member
Programs in a manner not specified in the Documentation.
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10.1.2 Disclaimer. THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL
OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
10.1.3 Exclusive Remedies. For any breach of the warranties contained in
Section 10.1.1 (Limited Warranties), the warranting party's
exclusive liability, and the other party's exclusive remedy, shall
be:
a. For Programs. ISI Member's correction of ISI Member Licensed
Program errors or deficiencies, or Oracle's correction of
Oracle Program errors or deficiencies, that cause breach of the
warranty, or if the warranting party is unable to make the
applicable program operate as warranted, the warranting party
shall have the right to replace the program with a program that
is functionally equivalent. If the other party cannot correct
or replace the applicable program, the parties' Development
Contacts (as defined in the Target Market Addendum) shall draft
a plan to address the Issues within five (5) days of the
warranting party's notice of non-replacement and the parties
shall thereafter together make commercially reasonable efforts
to implement the plan within a commercially reasonable amount
of time. If the parties cannot implement the plan within a
commercially reasonable amount of time, the non-warranting
party shall be entitled to recover the license or sublicense
fees paid to the warranting party for the program. In addition,
if a Customer notifies Oracle that the Oracle Solution Suite
fails to conform with a warranty provided by Oracle to the
Customer in accordance with Section 7.4 (Terms for Direct
Licenses to Customers), and the Development Contacts (as
defined in the Target Market Addendum) agree that the Oracle
Solution Suite fails to conform with such warranty and that
such failure is caused by an ISI Member Program's failure to
comply with the warranty contained in Section 10.1.1 (Limited
Warranties), the parties shall cooperate in correcting the
deficiencies in such ISI Member Program and Oracle shall be
entitled to recover any direct costs incurred by it assisting
with such correction. Any disagreements between the parties
arising under this paragraph shall be referred to dispute
resolution under Section 2.5 (Dispute Resolution).
b. For Media. The replacement of defective media.
c. For Services. The reperformance of the services, or if the
warranting party is unable to perform the services as
warranted, the parties' Development Contacts (as defined in the
Target Market Addendum) shall draft a plan to address the
issues within five (5) days of the warranting party's notice of
unsatisfactory services and the parties shall thereafter
together make commercially reasonable efforts to implement the
plan within a commercially reasonable amount of time. If the
parties cannot implement the plan within a commercially
reasonable amount of time, the non-warranting party shall be
entitled to recover the fees paid to the warranting party for
the unsatisfactory services. In addition, if a Customer
notifies Oracle that services performed in the course of an
Oracle Solution Suite fail to conform with a services warranty
provided by Oracle to the Customer (similar to the services
warranty stated in Section 10.1.1 (Limited Warranties)), and
Oracle and ISI Member agree that the services provided by
Oracle to the Customer fail to conform with such warranty and
that such failure is caused by the failure of services provided
by ISI Member to conform with the warranty stated in Section
10.1.1), the parties shall cooperate in reperforming the
services and Oracle shall be entitled to recover any direct
costs incurred by it in assisting with such reperformance
(including without limitation costs associated with Oracle's
performance of non-billable or only partially billable services
or reassignment of personnel). Any disagreements between the
parties arising under this paragraph shall be referred to
dispute resolution under Section 2.5 (Dispute Resolution).
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10.2 INFRINGEMENT INDEMNITY
a. Each party ("Provider") will defend and indemnify the other party
("Recipient ") against a claim that any information, design,
specification, instruction, software, data, or material furnished
by the Provider ("Material") and used by the Recipient hereunder
infringes a copyright or patent provided that: (a) the Recipient
notifies the Provider in writing within thirty (30) days after the
Recipient becomes aware of the claim; (b) the Provider has sole
control of the defense and all related settlement negotiations; and
(c) the Recipient furnishes the Provider with the assistance,
information, and authority reasonably necessary to perform the
above; reasonable out-of-pocket expenses incurred by the Recipient
in providing such assistance will be reimbursed by the Provider.
b. The Provider shall have no liability for any claim of infringement
resulting from: (a) the Recipient's use of a superseded or altered
release of some or all of the Material if infringement would have
been avoided by the use of a subsequent unaltered release of the
Material which is provided to the Recipient; or (b) any
information, design, specification, instruction, software, data, or
material not furnished by the Provider.
c. In the event that some or all of the Material is held or is
believed by the Provider to infringe, the Provider shall have the
option, at its expense, (a) to modify the Material to be
non-infringing; (b) to obtain for the Recipient a license to
continue using the Material; or (c) if neither (a) nor (b) can be
accomplished in a commercially reasonable manner, to terminate all
licenses for the infringing Material and require return of such
Material from the Recipient. If such termination and return
materially impede either party's ability to meet its obligations
under this Agreement with respect to the Oracle Solution Suite or
the ISI Member Programs, then the infringement shall be deemed a
material breach of this Agreement and the Recipient may terminate
this Agreement as set forth in Section 9.2 (Termination), subject
to the Provider's right to cure as specified in that Section. This
Section 10.2 states the parties' entire liability and exclusive
remedy for infringement.
10.3 LIMITATION OF LIABILITY
10.3.1 EXCEPT FOR LIABILITY UNDER SECTION 10.2 (INFRINGEMENT INDEMNITY),
NEITHER PARTY SHALL HAVE ANY LIABILITY FOR ANY INDIRECT,
INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT
LIMITED TO RELIANCE, COVER, OR LOSS OF ANTICIPATED PROFITS, EVEN IF
THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES;
10.3.2 EXCEPT FOR LIABILITY UNDER SECTION 10.2 (INFRINGEMENT INDEMNITY),
IN NO EVENT SHALL EITHER PARTY'S LIABILITY FOR DIRECT DAMAGES UNDER
THIS AGREEMENT EXCEED THREE MILLION DOLLARS ($3,000,000), SUBJECT
TO THE FOLLOWING: IF
(a) ORACLE'S FULFILLMENT OF ANY CONTRACTUAL OBLIGATION TO A
CUSTOMER IS CONDITIONAL WHOLLY OR PARTLY ON ISI MEMBER'S
DELIVERY OF A CRITICAL DELIVERABLE UNDER THIS AGREEMENT, OR
(b) ISI MEMBER MATERIALLY BREACHES THIS AGREEMENT OR A TARGET
MARKET ADDENDUM AND SUCH BREACH CAUSES ORACLE TO BREACH A
CONTRACTUAL OBLIGATION TO A CUSTOMER, THEN
THE LIMIT ON ISI MEMBER'S LIABILITY FOR DIRECT DAMAGES ARISING OUT
OF OR IN CONNECTION WITH SUCH OCCURRENCE(S) SHALL BE THE GREATER OF
(x) THREE MILLION DOLLARS ($3,000,000) OR (y) THE TOTAL FEES PAID
TO ISI MEMBER ALLOCABLE TO THE RELEVANT CUSTOMER TRANSACTION(S),
UNLESS IN THE RELEVANT CUSTOMER TRANSACTION(S) THE LIMITATION OF
LIABILITY CONTAINED IN THE AGREEMENT BETWEEN ORACLE AND THE
CUSTOMER IS TWO (2) TIMES THE FEES PAID TO ORACLE BY SUCH CUSTOMER,
IN WHICH CASE THE LIMIT ON ISI MEMBER'S LIABILITY SHALL BE THE
GREATER OF (x) THREE MILLION DOLLARS ($3,000,000) OR (y) TWO (2)
TIMES THE TOTAL FEES PAID TO ISI MEMBER ALLOCABLE TO THE RELEVANT
CUSTOMER TRANSACTION(S); PROVIDED THAT WITHIN THAT LIMIT ISI
MEMBER'S LIABILITY IN ANY SUCH CASE SHALL BE PROPORTIONAL TO ISI
MEMBER'S DEGREE OF FAULT (IF ANY) IN CAUSING
<PAGE> 31
SUBJECT TO ORACLE MANAGEMENT APPROVAL
ORACLE TO BREACH SUCH CONTRACTUAL OBLIGATION TO THE CUSTOMER (FOR
PURPOSES OF THIS AGREEMENT, ANY COMPENSATION PAYABLE BY ORACLE TO A
CUSTOMER FOR BREACH OF SUCH A CONTRACTUAL OBLIGATION SHALL BE
CONSIDERED "DIRECT DAMAGES" INCURRED BY ORACLE).
10.3.3 NOTWITHSTANDING THE FOREGOING, NO LIMIT SHALL APPLY TO DAMAGES FOR
TANGIBLE OR INTANGIBLE PROPERTY (INCLUDING SOFTWARE OR DATA) DAMAGE
OR LOSS INTENTIONALLY CAUSED BY A PARTY TO THIS AGREEMENT.
10.4 ORACLE INDEMNIFICATION
Oracle will defend and indemnify ISI Member against:
a. All claims and damages to ISI Member caused by Oracle's failure to
include the following contractual provisions in each Customer
agreement:
i. Restrict use of the ISI Member Programs to object code;
ii. Prohibit (a) transfer of the ISI Member Programs except for
temporary transfer in the event of computer malfunction; (b)
assignment, timesharing and rental of the ISI Member Programs;
and (c) title to the ISI Member Programs from passing to the
Customer or any other party;
iii. Prohibit the reverse engineering, disassembly or
decompilation of the ISI Member Programs and prohibit
duplication of the ISI Member Programs except for a single
backup or archival copy;
iv. Require the Customer, at the termination of the sublicense, to
discontinue use and destroy or return to Oracle all copies of
the ISI Member Programs and Documentation;
v. Prohibit publication of any results of benchmark tests run on
the ISI Member Programs; and
vi. Require the Customer to comply fully with all relevant export
laws and regulations of the United States to assure that
neither the ISI Member Programs, nor any direct product
thereof, are exported, directly or indirectly, in violation of
United States law.
b. All claims and damages to ISI Member caused by Customers' breach of
any of the foregoing provisions.
ARTICLE XI - GENERAL
11.1 NONDISCLOSURE
11.1.1 Scope. It is expected that the parties may disclose to each other
certain information which may be considered confidential and trade
secret information ("Confidential Information"). Confidential
Information shall include: (a) the ISI Member Programs, any other
ISI Member programs licensed to Oracle hereunder, the Oracle
Solution Suite, the Oracle Programs, the Oracle Method and AIM; (b)
product designs and specifications, release management and version
control standards, localization support requirements and Technical
Reference Manuals; (c) customer lists and marketing plans; (d)
Confidential Information disclosed by either party in writing that
is marked as confidential at the time of disclosure; (e) the terms
of this Agreement; and (f) Confidential Information disclosed by
either party in any other manner and is identified as confidential
at the time of disclosure and is also summarized and designated as
confidential in a written memorandum delivered to the receiving
party within thirty (30) days of the disclosure.
11.1.2 Exclusions. Notwithstanding the foregoing, Confidential Information
shall not include information which: (a) is or becomes a part of
the public domain through no act or omission of the other party;
(b) was in the receiving party's possession before receipt from the
party providing such Confidential Information; (c) is rightfully
received by the receiving party from a third party without any
duty of confidentiality; (d) is disclosed to a third party by the
party providing the Confidential Information without a duty of
confidentiality on the third party; (e) is independently developed
by the other party; (f) is disclosed under operation of law; or (g)
is disclosed with the prior written approval of the party providing
such Confidential Information.
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11.1.3 Rights and Obligations. All Confidential Information owned solely
by one party and disclosed to the other party shall remain solely
the property of the disclosing party. The parties agree, both
during the term of this Agreement and for a period of five (5)
years after termination or expiration of this Agreement (except
Object Materials and Source Materials, to which the obligations
stated in this Section 11.1 above shall apply perpetually) to hold
each other's Confidential Information in confidence and to protect
the disclosed Confidential Information by using the same degree of
care to prevent the unauthorized use, dissemination or publication
of the Confidential Information as they use to protect their own
confidential information of a like nature. The receiving party will
limit disclosure of the disclosing party's Confidential Information
to the receiving party's employees who have a need to know and who
have signed written agreements enabling the receiving party to
fully comply with its obligations hereunder (including without
limitation under Section 11.1.4 (Source Materials)). The receiving
party shall not make the disclosing party's Confidential
Information available in any form to any third party, except ISI
Co-Members with a need to know which have agreed in writing to the
Multi-Party Nondisclosure Agreement attached hereto as Exhibit G
(Industry Solutions Initiative Multi-Party Nondisclosure Agreement)
and contractors with a need to know and with which the receiving
party has written agreements in place enabling the receiving party
to fully comply with its obligations hereunder (including without
limitation this Section 11.1). Neither party will use the other's
Confidential Information for any purpose other than the
implementation of such party's obligations under this Agreement.
Notwithstanding the foregoing sentence, Oracle shall not disclose
any of ISI Member's Confidential Information to any ISI Co-Member
for any reason without ISI Member's prior written consent.
11.1.4 Source Materials. The terms in this Section 11.1.4 shall apply to
Source Materials in addition to the other terms of this Section
11.1 (Nondisclosure). The only employees or contractors of each
party authorized under this Agreement to have access to or to use
the Source Materials shall be those so designated in Exhibit H (Key
Personnel) hereto (collectively, "Authorized Personnel") for so
long as such persons are employed or contracted by the party
receiving the Source Materials. The Authorized Personnel may be
changed if mutually agreed in writing by the parties. ISI Member
Authorized Personnel shall only have access to or use the Oracle
Source Materials in a secure area located at the Oracle facility in
Redwood City, California, and such access or use shall be subject
to Oracle's standard Network Access Agreement, a copy of which is
attached hereto as Exhibit I (Oracle's Current Network Access
Agreement). Oracle Authorized Personnel shall only have access to
or use the ISI Member Source Materials in a secure area at such
Oracle facility or at ISI Member's facilities. The Source Materials
shall be protected by the following:
a. Physical Protection. Source Materials in electronic form shall
be placed on a single CPU located in the secure area ("Secure
Area") and sufficient security procedures to prohibit access to
those other than Authorized Personnel. Once loaded, the Source
Materials (and backup copy) shall be placed in a secure
cabinet. The Source Materials in electronic form must never be
moved from the Secure Area unless the party disclosing the
Source Materials consents in writing. All hard copy produced
from the Source Materials must be labeled as confidential
information of the party disclosing the Source Materials, and
must be stored in the secured area and returned to the
disclosing party or destroyed upon termination, subject to
Article IX (Term and Termination). All hard copies and backup
copies of the Source Materials must be labeled as confidential
information of the party disclosing the Source Materials, and
must be stored in a locked desk drawer in the Secure Area.
b. Electronic Protection. When loaded onto a disk, the Source
Materials must be loaded onto a file system with access
permissions restricted to Authorized Personnel. Network access
(telnet) to the machine containing the Source Materials must be
restricted to Authorized Personnel only.
11.1.5 Residuals. Notwithstanding the above, each party may use the
residuals from the other party's Confidential Information; provided
that, no Authorized Personnel who have had access to the Source
Materials of the other party shall be entitled to work on or
contribute to the development
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
of any product similar to the product(s) derived from the other
party's Source Materials during the time period ending six (6)
months after the time the applicable Authorized Person(nel) last
had access to the Source Materials of the other party. The term
"residuals" as used in this paragraph shall mean the Confidential
Information in nontangible form (i.e., not in written or other
documentary form, including tape or disk) which may be retained by
those employees of ISI Member or Oracle who have had access to the
other's Confidential Information, including ideas, concepts,
know-how, or techniques contained therein. Neither party shall have
any obligation to pay royalties for any work resulting from the use
of residuals in accordance with this Section.
11.2 GOVERNING LAW
This Agreement, and all matters arising out of or relating to this
Agreement, shall be governed by the procedural and substantive laws of the
State of California and shall be deemed to be executed in Redwood City,
California.
11.3 NOTICE
All notices required to be given hereunder shall be in writing and shall
be deemed to have been given upon deposit in first class mail, sent
through a nationally recognized courier service, or transmission by
confirmed telefacsimile as follows, provided however that the parties may
agree notices may also be sent by electronic mail:
For ISI Member: Retek Information Systems
801 Nicollet Mall
Minneapolis, MN 55402
Attn: Legal Department
For Oracle: Oracle Corporation
500 Oracle Parkway
Redwood Shores, CA 94065
Attn: Legal Department
11.4 RELATIONSHIP BETWEEN THE PARTIES
In all matters relating to his Agreement, Oracle and ISI Member shall act
as independent contractors. Neither party will represent that it has any
authority to assume or create any obligation, expressed or implied, on
behalf of the other party, or to represent the other party as agent,
employee, or in any other capacity, except in the provision of first-line
technical support services pursuant to Article VIII. Neither party shall
have any obligation, expressed or implied, except as expressly set forth
herein.
11.5 INDEPENDENT DEVELOPMENT/FREEDOM OF ACTION
Each party acknowledges that the other party is in the software
development business. Subject to Section 3 of the Target Market Addendum
(Exclusivity), neither party shall be precluded from developing, using,
marketing, licensing, and/or selling any independently developed software
which has the same or similar functionality as any product owned or
distributed by the other, so long as such activities do not infringe the
Intellectual Property Rights of the other party.
11.6 EXPORT
The parties agree to comply fully with all relevant export laws and
regulations ("Export Laws") to assure that neither the ISI Member
Programs, any other ISI Member program, the Oracle Solution Suite, any
other Oracle Program, nor any direct product thereof is (1) exported,
directly or indirectly, in violation of Export Laws; or (2) is intended to
be used for any purposes prohibited by the Export Laws, including, without
limitation, nuclear, chemical, or biological weapons proliferation. ISI
Member shall provide Oracle with the U.S. Department of Commerce export
classification codes for the ISI Member Programs.
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
11.7 SEVERABILITY; ASSIGNMENT; COUNTERPARTS; NO WAIVER; ENTIRE AGREEMENT
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby. Neither party may assign any rights, duties,
obligations or privileges under this Agreement without the prior written
consent of the other party, which consent shall not be unreasonably
withheld. This agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument. The failure of any party to
enforce any of the provisions hereof shall not be construed to be a waiver
of the right of such party thereafter to enforce such provisions. This
Agreement sets forth the entire Agreement between the parties and
supersedes prior proposals, agreements, term sheets and representations
between them, whether written or oral, relating to the subject matter
contained herein. This Agreement may be changed only if agreed to in
writing and signed by an authorized signatory of each party.
RETEK INFORMATION SYSTEMS ORACLE CORPORATION
By: XXXXX By: XXXXX
Name: John Buchanan Name: Raymond Lane
Title: President Title: President
Effective Date of this Agreement: September 10, 1998
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
11.7 SEVERABILITY; ASSIGNMENT; COUNTERPARTS; NO WAIVER; ENTIRE AGREEMENT
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby. Neither party may assign any rights, duties,
obligations or privileges under this Agreement without the prior written
consent of the other party, which consent shall not be unreasonably
withheld. This agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument. The failure of any party to
enforce any of the provisions hereof shall not be construed to be a waiver
of the right of such party thereafter to enforce such provisions. This
Agreement sets forth the entire Agreement between the parties and
supersedes prior proposals, agreements, term sheets and representations
between them, whether written or oral, relating to the subject matter
contained herein. This Agreement may be changed only if agreed to in
writing and signed by an authorized signatory of each party.
RETEK INFORMATION SYSTEMS ORACLE CORPORATION
By: _____________________________________ By: xxxxx
Name: ___________________________________ Name: Raymond Lane
Title: __________________________________ Title: President
Effective Date of this Agreement: September 10, 1998
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
EXHIBIT LIST
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT A Development Cooperation Guidelines
EXHIBIT B Acceptable Oracle and Third Party Tools
EXHIBIT C Form of Statement of Work
EXHIBIT D Services Subcontract Agreement
EXHIBIT E Service Level Agreement
EXHIBIT F Certificate of Authorship
EXHIBIT G Industry Solutions Initiative Multi-Party Nondisclosure Agreement
EXHIBIT H Key Personnel
EXHIBIT I Oracle's Current Network Access Agreement
EXHIBIT J Minimum Sublicense Fees
EXHIBIT K Grandfathered Customers
EXHIBIT L ISI Member Net Growth and Profit Margin
EXHIBIT M ISI Member Trademark Guidelines
EXHIBIT N Oracle Technical Support Policies
EXHIBIT O Oracle Profit Margin
EXHIBIT P Qualifying a Lead
</TABLE>
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
EXHIBIT A
DEVELOPMENT COOPERATION GUIDELINES
1. GENERAL DEVELOPMENT RESPONSIBILITIES. It is the parties' intent to
work together closely as a "virtual development team" in accordance with
the Development Plan.
a. ISI Member Responsibilities. ISI Member shall use commercially
reasonable efforts to:
i. Be responsible for ongoing development of the ISI Member
Programs and Integration of the ISI Member Programs with the
Oracle Solution Suite to the extent provided in the
Development Plan.
ii. Make available, upon Oracle's reasonable request, ISI
Member's domain expertise for the ISI Member's components of
the Oracle Solution Suite.
iii. Make available, upon Oracle's reasonable request, ISI
Member's personnel with expertise specific to the following
vertical markets within the Target Market: (1) fashion; (2)
department store; (3) mass merchant; (4) hard line specialties
(e.g. jewelry, hardware and electronics); (5)
grocery/convenience store; (6) other vertical markets ISI
Member formally establishes.
iv. Follow Oracle's application enhancement definition, as such
definition is mutually agreed upon in writing by the parties.
v. Continuously work toward the incorporation into its product
set of a common data model with the Oracle components of the
Oracle Solution Suite to enable the products in the Suite to
avoid duplication of data.
b. Oracle Responsibilities. Oracle shall use commercially reasonable
efforts to:
i. Be responsible for ongoing development of the Oracle Programs
and integration of the Oracle Programs with the Oracle
Solution Suite.
ii. Be generally responsible for coordinating the parties' and
the ISI Co-Members' integration efforts for the Oracle
Solution Suite.
iii. Provide personnel with expertise specific to the Oracle
product set;
iv. Certify the Oracle Solution Suite and integration of its
components against Oracle's certification standards.
2. Pre-Development and Installation.
a. ISI Member Responsibilities. ISI Member shall use commercially
reasonable efforts to:
i. Migrate the ISI Member Programs (with the exception of the
Retek Demand Forecasting product) to the Oracle database
environment as required to facilitate initial integration.
ii. Provide assistance as mutually agrees in writing by the
parties in set-up of a development lab for the Oracle
Solution Suite ("Development Lab") at one or more Oracle
and/or ISI Member facilities to be determined by the parties.
iii. Provide a senior-level DBA/Systems Administrator to assist in
the initial installation of the ISI Member Programs
(including initial installation of updates, patches, fixes,
etc.) in the Development Lab, and, in the course of such
installation, to allow a reasonable number of Oracle
development and database administration personnel to view and
ask questions with respect to such installation.
iv. Provide a senior-level applications consultant to assist in
set-up with the initial installation of the ISI Member
Programs (including initial installation of updates, patches,
fixes, etc.) in the Development Lab.
v. Ensure that its technical personnel working on Oracle
Solution Suite development have been properly trained in
using and developing on Oracle products.
vi. Ensure that its database administrators working on Oracle
Solution Suite development have been properly trained to
install and support the Oracle development environment.
b. Oracle Responsibilities. Oracle shall use commercially reasonable
efforts to:
i. Certify the proper functioning of the migrated ISI Member
Programs.
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
ii. Assist in set-up of a Development Lab for the Oracle Solution
Suite at one or more Oracle and/or ISI Member facilities to be
determined by the parties.
iii. Provide a senior-level DBA/Systems Administrator to assist in
the initial installation of the Oracle Programs (including
initial installation of updates, patches, fixes, etc.) in the
Development Lab, and, in the course of such installation, to
allow a reasonable number of ISI Member development and
database administration personnel to view and ask questions
with respect to such installation.
iv. Provide a senior-level applications consultant to assist in
set-up with the initial installation of the Oracle Programs
(including initial installation of updates, patches, fixes,
etc.) in the Development Lab, and, in the course of such
installation, to allow a reasonable number of ISI Member
development and database administration personnel to view and
ask questions with respect to such installation.
v. Provide relevant application program interface standards to
the ISI Member.
vi. Provide compliance standards for the Oracle Programs and
Oracle database.
3. Future Enhancements. The parties are responsible for enhancing the
functionality of their respective components of the Oracle Solution Suite
and eliminating functional redundancy on an ongoing basis in accordance
with the Development Plan.
4. Documentation
a. ISI Member Responsibilities. Provide content to Oracle on the ISI
Member Programs for inclusion in Oracle product documentation,
using "pdf" format on CD-ROM and with Oracle prescribed cover
page.
b. Oracle Responsibilities. Provide access to Oracle product
documentation standards and formats to the ISI Member.
5. Quality Assurance.
a. ISI Member Responsibilities. ISI Member shall use commercially
reasonable efforts to:
i. Adhere to its quality assurance (QA) practices and standards
for the ISI Member Programs that ISI Member has provided
to Oracle on September 4, 1998. ISI Member may modify such
practices and standards at its discretion, but not below the
level in effect as of September 4, 1998.
ii. Adhere to its product testing procedures for the ISI Member
Programs that ISI Member has provided to Oracle on September
4, 1998. ISI Member may modify such procedures at its
discretion, but not below the level in effect as of September
4, 1998.
iii. Develop and execute regression test procedures for the ISI
Member Programs, using mutually agreed-upon testing tools.
iv. Assist Oracle in testing and validating the ISI Member
Programs at the Development Lab, in accordance with Section
2.1.3 of the ISI Master Agreement.
b. Oracle Responsibilities. Oracle shall use commercially reasonable
efforts to:
a. Provide Oracle's QA practices and standards to the ISI Member.
b. Conduct QA reviews of ISI Member Program development and
integration with Oracle Programs.
c. Perform testing of the Oracle Solution Suite integration,
including integration of the ISI Member Programs with the
applicable Oracle Programs.
6. Technology Upgrade.
a. ISI Member Responsibilities. ISI Member shall use commercially
reasonable efforts to provide migration paths from native ISI
Member Program versions to first production Oracle Solution Suite
for Customers current on technical support.
b. Mutual Responsibilities. Provide migration paths from each
version of its Oracle Solution Suite components to the next for
Customers current on technical support.
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
7. Release Management
a. ISI Member Responsibilities. ISI Member shall use commercially
reasonable efforts to:
i. Adhere to its standards for ISI Member Program release
management and version control that ISI Member has provided to
Oracle on September 4, 1998. ISI Member may modify such
practices and standards at its discretion, but not below the
level in effect as of September 4, 1998.
ii. Not release the ISI Member Programs as Oracle products or
identify versions of the ISI Member Programs released by the
ISI Member as Oracle products.
b. Oracle Responsibilities. Oracle shall use commercially reasonable
efforts to:
i. Provide its release management and version control standards to
the ISI Member, and assist in coordination and synchronization
of releases of Oracle Programs and ISI Member Programs. Such
standards shall be considered confidential information of
Oracle.
ii. Be solely responsible for releasing the Oracle Solution Suite
to any Customers, and for releasing the ISI Member Programs for
inclusion in the Oracle Solution Suite.
8. Modular and Functional Redundancies. Oracle will be responsible for
identifying modular and functional redundancies among the various Oracle
Programs, ISI Member Programs and ISI Co-Member Programs and will make
recommendations to the Executive Committee as to which redundant
components will be included in the Oracle Solution Suite and which will be
excluded. The resolution of such modular and functional redundancies will
be mutually agreed by the parties and reflected in the Development Plan.
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EXHIBIT B
ACCEPTABLE ORACLE AND THIRD PARTY TOOLS
Required for user Interfaces
Developer/2000
Suggested Tools
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EXHIBIT C
FORM OF STATEMENT OF WORK
_____________________________________________________________________________
This Statement of Work ("SOW") shall be governed by the terms of the Industry
Solutions Initiative Agreement between Oracle Corporation ("Oracle") and
___________ ("ISI Member") dated ____________ ("Agreement"), as amended.
Capitalized terms used in this SOW and not otherwise defined shall have the
meanings ascribed to them in the Agreement.
A. SCOPE OF SERVICES; OBLIGATIONS
1. Scope of Services
2. Parties' Obligations
3. Project Management
3.1 Project Manager. Each party shall designate a Project Manager
who shall work together with the other party's Project Manager
to facilitate an efficient delivery of Services.
3.2 Change Orders. Any change in the specified Scope of Services
must be mutually agreed upon by the Parties in writing.
B. RATES AND PAYMENTS (if applicable)
1. Rates
2. Payment Type
3. Invoicing
C. ADDITIONAL TERMS
1. Rights to Developments
ISI MEMBER: ORACLE CORPORATION
Signature:__________________ Signature:__________________
Name: ______________________ Name: ______________________
Title: _____________________ Title: _____________________
Effective Date: ____________
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EXHIBIT D
ORACLE(R)
INDUSTRY SOLUTIONS INITIATIVE
SERVICES SUBCONTRACT AGREEMENT
_______________________________________________________________________________
This Service Subcontract Agreement ("SSA") is made as of ______________________
(the "Effective Date") between Oracle Corporation, 500 Oracle Parkway, Redwood
City, California 94065, U.S.A. ("Oracle"), and ________________________________
_______________________________________________________________ ("ISI Member").
The above parties have entered into an Industry Solutions Initiative Master
Agreement ("Master Agreement") for the development, marketing and distribution
of one or more Oracle Solution Suites. This SSA shall govern the parties'
cooperative provision of consulting and education services to Customers (as
"Customers" is defined in the Master Agreement) for implementation of the Oracle
Solution Suite(s). In each Consulting Subcontract Order executed by the parties
hereunder, one of the parties shall be designated the Prime Contractor and the
other shall be designated the Subcontractor for purposes of that Subcontract
Order. In each Education Subcontract Order executed by the parties hereunder,
Oracle shall be the Prime Contractor.
I. DEFINITIONS
1.1 "Services" shall mean Consulting Services and/or Education
Services, as applicable.
A. "Consulting Services" shall mean software-related consulting services
provided by Subcontractor to Prime Contractor for the benefit of a
Customer pursuant to a Subcontract Order signed by the parties under this
SSA.
B. "Education Services" shall mean software-related education or training
services provided by Subcontractor to Prime Contractor for the benefit of
a Customer pursuant to a Subcontract Order signed by the parties under
this SSA.
1.2 "Subcontract Order" shall mean the form which Prime Contractor uses to
order Consulting Services from Subcontractor or which Oracle uses to order
custom Education Services from the ISI Member. Each Subcontract Order
shall be governed by the terms of this SSA and will reference this SSA by
its Effective Date specified below. A form Subcontract Order is attached
hereto as Exhibit A.
A. "Consulting Subcontract Order" shall mean the form which Prime Contractor
uses to order Consulting Services from Subcontractor. The Consulting
Subcontract Order will identify (a) the scope of work for the Services,
(b) the labor rate at which each consultant level will be billed if the
Services are provided on a time and material ("T&M") basis, (c) the fees,
payment schedule, and deliverables if the Services are provided on a fixed
price basis, (d) any applicable terms regarding rights in developments as
specified in Article V (Rights in Developments) below, and (e) other
provisions applicable to the Consulting Services.
B. "Education Subcontract Order" shall mean the form which Prime Contractor
uses to order custom Education Services from Subcontractor. The Education
Subcontract Order will identify (a) the Education Services to be provided,
(b) the location where the Education Services are to be delivered, (c) the
total fee if the Education Services are provided on a fixed price basis,
(d) the labor rate at which each consultant level will be billed if the
Education Services are provided on a time and material ("T&M") basis, and
(e) other provisions applicable to the Education Services. Oracle may
order standard ISI Member Education Services, as listed on the attached
ISI Member Education Pricing Attachment, using an Oracle purchase order
which specifies (a) the Education Services to be provided, (b) the
location where the Education Services are to be delivered, and (c) the
total fee for the Education Services.
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
1.3 "Prime Contract" shall mean the agreement between Prime Contractor and the
applicable Customer in connection with which Subcontractor is providing
the Services hereunder.
II. CHARGES, PAYMENTS, AND TAXES
2.1 FEES FOR CONSULTING SERVICES
Unless otherwise specified in the applicable Consulting Subcontract Order,
Consulting Services shall be provided on a T&M basis at Subcontractor's
T&M rates specified in the Consulting Rates Attachment to this SSA, as
applicable. Descriptions of the job titles used in the Consulting Rates
Attachment are set forth in the Job Descriptions Attachment to this SSA.
If a dollar limit is stated in the applicable Subcontract Order for T&M
Consulting Services, the limit shall be deemed an estimate for Prime
Contractor's budgeting and Subcontractor's resource scheduling purposes;
after the limit is expended, Subcontractor will continue to provide the
Consulting Services on a T&M basis, if a Subcontract Order for
continuation of the Consulting Services is signed by the parties.
2.2 FEES FOR EDUCATION SERVICES
Unless otherwise specified in the applicable Consulting Subcontract Order,
ISI Member Education Services shall be provided on a fixed-fee basis at
the fees specified on the ISI Member Education Pricing Attachment to this
SSA, as such attachment may be updated no more than once in a twelve month
period upon written notice from ISI Member to Oracle; provided, however,
that any increases in such prices are reasonable (reasonableness to be
determined in relation to the relevant market at the time of any increase)
and that any updates beyond one in a twelve month period shall be subject
to mutual agreement of the parties. The parties understand that custom ISI
Member Education Services that address particular Customer or Oracle
requirements may be provided on a T&M basis at the ISI Member's T&M rates
specified in the ISI Member Education Pricing Attachment to this SSA. If a
dollar limit is stated in the applicable Subcontract Order for T&M
Education Services, the limit shall be deemed an estimate for Oracle's
budgeting and the ISI Member's resource scheduling purposes; after the
limit is expended, the ISI Member will continue to provide the Education
Services on a T&M basis, if a Subcontract Order for continuation of the
Education Services is signed by the parties.
2.3 INVOICING AND PAYMENT
Subcontractor shall invoice Prime Contractor monthly, unless otherwise
specified in the applicable Subcontractor Order. Charges shall be payable
thirty (30) days from receipt of invoice. Prime Contractor shall issue a
purchase order, or alternative document acceptable to Subcontractor, on or
before commencement of Services under the applicable Subcontract Order.
2.4 INCIDENTAL EXPENSES
Prime Contractor shall reimburse Subcontractor for actual and reasonable
travel, communications, administrative, and out-of-pocket expenses
incurred in conjunction with the Services, subject to the Customer's
and/or Prime Contractor's reasonable expense reimbursement policies; Prime
Contractor shall make any such policies available to the Subcontractor
upon request.
2.5 PROPOSALS
Each party shall bear its own costs in evaluating and drafting proposals
for Customer implementation and education plans.
2.6 TAXES
The charges do not include taxes. If Subcontractor is required to pay any
federal, state, or local taxes based on the Services provided under this
SSA, the taxes shall be billed to and paid by Prime Contractor; this shall
not apply to taxes based on Subcontractor's income, employment-related or
corporate franchise taxes.
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2.7 AUDIT
Subcontractor shall keep accurate books of account and records pertaining
to the performance of Services hereunder. No more than once during any
twelve (12) month period, the Prime Contractor may, at its sole expense,
employ an Independent Certified Public Accountant who is not compensated
based on the results of the audit, and who is acceptable to Subcontractor,
to inspect such books of account and records upon reasonable notice to
Subcontractor, and at a reasonable time during normal business hours for
the purpose of verifying the fees charged to Prime Contractor under this
SSA. Unless necessary to establish in a court of law the Prime
Contractor's right to reimbursement of fees paid to Subcontractor
hereunder (in which case the Certified Public Accountant shall request a
protective order), such Certified Public Accountant shall hold all
information obtained in strict confidence; shall not disclose such
information to any other person or entity (except the Prime Contractor)
without Subcontractor's prior written consent; and shall not disclose to
Prime Contractor any information regarding Subcontractor's business other
than any noncompliance by Subcontractor with the fee payment provisions
hereof.
III. PROJECT MANAGEMENT
3.1 PROJECT MANAGEMENT
A. Each party shall appoint a project manager who shall be responsible for
coordinating its activities under a Subcontract Order ("PPM" for Prime
Contractor's project manager and "SPM" for Subcontractor's project
manager). Each party shall direct all inquiries concerning the Services to
the other party's project manager. The PPM shall have primary
responsibility for project management and delivery of Services to the
Customer. The SPM shall have primary responsibility for delivery of
Subcontractor's Services to the Prime Contractor. The PPM or his/her
designee shall have the right to monitor and attend the performance of
Services by Subcontractor for quality assurance purposes.
B. The PPM and SPM will meet, either in person or via telecommunications, at
times and places agreed upon by them to discuss the Services. Written
status reports and written replies thereto will be submitted at times
agreed upon by the PPM and SPM.
3.2 CUSTOMER CONTACT
In order to promote consistency and the appearance of unity to the
Customer, the Prime Contractor shall act as the primary point of contact
with the Customer, and Subcontractor personnel shall not make direct
contact with the Customer without the approval of the Prime Contractor.
Where Oracle is the Prime Contractor (and at all times in the case of
Education Services), the ISI Member shall not request to the Customer that
the ISI Member and Customer enter into a contractual relationship, either
directly or through a third party, for the provision of Services relating
to the Oracle Solution Suite or programs licensed or proposed to the
Customer as part of the Oracle Solution Suite in the Target Market,
without Oracle's prior written consent. The ISI Member shall not make any
representations, warranties, or guarantees concerning the ISI Member
Programs (as defined in the Master Agreement) or Services that are
inconsistent with those made in this SSA, in the Master Agreement or by
Oracle.
3.3 CUSTOMER REQUIREMENTS ASSESSMENT
The Subcontractor shall provide all reasonable cooperation to the Prime
Contractor in assessing Customer requirements for Consulting Services
and/or Education Services, including without limitation Services
specifically related to Subcontractor software programs. ISI Member shall
provide to Oracle, at no charge, copies of any tools or matrices owned and
used by ISI Member, if any, for Oracle's use in assessing Customer's
requirements and Oracle's and ISI Member's capabilities with respect to
Services related to the Oracle Solution Suite. The ISI Member hereby
grants to Oracles a worldwide, nonexclusive license to use such tools and
matrices during the term of the Master Agreement for the foregoing
purpose. Any tools or matrices provided to Oracle hereunder shall be
treated as Confidential Information in accordance with Section 8.1
(Nondisclosure).
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3.4 CUSTOMER EDUCATION CLASS REGISTRATION AND SCHEDULING
All registration and scheduling of Education Services for Customers under
this SSA, including ISI Member standard course offerings, shall be done
through Oracle Education's registration and scheduling system. If the
parties agree to a schedule of times and locations for Education
Services, ISI Member shall use reasonable efforts to provide qualified
personnel available to deliver such Education Services ordered by Oracle
at the scheduled times and locations. Oracle shall have no liability to
ISI Member if a Customer cancels scheduled Education Services, except in
the event that Oracle does not provide ISI Member with a cancellation
notice at least seven days prior to the date of the scheduled start of
Education Services for the applicable Customer; in that event, Oracle
shall pay ISI Member for any time and materials expended and any
reasonable travel expenses incurred by ISI Member prior to such
cancellation in accordance with this SSA.
3.5 EDUCATION MATERIALS
The ISI Member shall be solely responsible for the design development,
reproduction and distribution of materials to be provided by the ISI
Member as part of its delivery of Education Services (including software
and hard-copy materials), subject to Section 3.6 (Acceptance) below.
3.6 EDUCATION EVENT TECHNICAL SUPPORT
The ISI Member shall be solely responsible for all technical support
required for the delivery of Education Services hereunder. Upon request,
Oracle shall endeavor to provide reasonable assistance to the ISI Member
where Education Services are provided at an Oracle Education Center.
3.7 ACCEPTANCE
Any deliverables specified in a Subcontract Order shall be subject to
acceptance by Prime Contractor. Such acceptance shall be at Prime
Contractor's reasonable discretion, subject to any procedures and/or
criteria specified in the Subcontract Order.
3.8 CHANGES TO SCOPE
In order to change the scope of work in a Subcontract Order, the PPM will
submit the written request to the SPM. The SPM will submit to the PPM an
estimate of the revised charges and changes, if any, in the delivery
schedule. Subcontractor will, at the PPM's option, continue performing
the Services in accordance with the Subcontract Order until the parties
agree in writing on the change in scope of work, scheduling, and fees
therefor. Any change shall be agreed to by the parties in writing prior
to implementation. Any dispute concerning changes to a scope of work
shall be referred to dispute resolution under Section 3.12 (Dispute
Resolution) below.
3.9 PERSONNEL
A. The SPM shall provide the PPM with the resume of each person, including
any replacement personnel, which Subcontractor proposes to assign to
perform Services. The PPM shall have the opportunity, at its option, to
interview any such person. A person reasonably rejected by the PPM will
not be assigned to perform Services under the Subcontract Order; disputes
concerning the reasonableness of any such rejection shall be referred to
dispute resolution under Section 3.12 (Dispute Resolution) below. Any
person who the parties agree to assign to perform Services shall be
deemed to have been interviewed and accepted.
B. The PPM shall notify the SPM in writing if the PPM or Customer believes
that a person assigned by the Subcontractor to perform Services is not
performing the Services in an acceptable manner, and the SPM shall take
such reasonable corrective action as the SPM may deem appropriate to
address such concern (including, with the Customer's consent, meeting
with the Customer together with the PPM). If the SPM cannot resolve the
PPM's or Customer's reasonable concern without removing the person, the
SPM shall remove the person. If the parties believe it is necessary to
replace the person, the SPM will use commercially reasonable efforts to
replace the person as soon as possible. Except as may otherwise be
agreed in writing, Subcontractor shall bear the cost of familiarizing the
replacement person with the
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project; the parties agree that schedules and cost estimates, if any, may
require adjustment as a result of any replacement.
C. Subcontractor shall fully comply with any and all applicable federal,
state and local laws, codes, rules, regulations, California Wage Orders,
where applicable, and Executive Orders pertaining to immigration, foreign
nationals working in the United States, labor and employment.
Subcontractor shall not permit work to be performed under this SSA by
individuals who are nationals of countries to which the United States
government prohibits export of any technology or information to which such
individual may have access in performing the Services.
3.10 COOPERATION
A. Prime Contractor acknowledges that the timely provision of and access to
office accommodations, facilities, equipment, assistance, cooperation,
complete and accurate information and data from the officers, agents, and
employees of Prime Contractor and the Customer, and suitably configured
computer products may be essential to performance of the required Services
and that Subcontractor's ability to complete any Services may be dependent
upon same. If relevant requirement(s), project plan(s), schedule, scope,
specification(s), design(s), software, hardware product(s), or related
system environment(s) or architecture are changed by Prime Contractor, the
Customer or any other person, Subcontractor shall not be responsible for
the change unless Prime Contractor and Subcontractor specifically consent
to the change, scheduling, and additional charges, if any, in writing.
B. Subcontractor acknowledges that Prime Contractor's ability to complete its
obligations under the Prime Contract is dependent on Subcontractor's
provision, in a timely manner in accordance with the applicable
Subcontract Order, of (a) personnel with the education and skills
necessary to perform the Services, (b) assistance and cooperation of such
personnel, and (c) complete and accurate information, data, status
reports, and deliverables (if required under the Subcontract Order) by
Subcontractor and its personnel.
3.11 SUBCONTRACTING
If Subcontractor cannot provide the number of qualified Subcontractor
personnel required to perform the Services, or replacement personnel, the
SPM shall promptly so notify the PPM. Prime Contractor shall have the
right to provide personnel, whether employees or subcontractors, for the
unfilled positions prior to considering Subcontractor's use of third party
contractors. Subcontractor may use a third party contractor to perform
Services provided that Subcontractor obtains the prior written consent of
the PPM and that Subcontractor's agreement with the third party contractor
is not inconsistent with the terms of this SSA, including without
limitation the terms of Article V (Rights in Developments) and Section 8.1
(Nondisclosure) below.
3.12 DISPUTE RESOLUTION
Any dispute between the parties, whether with respect to interpretation of
this SSA or a Subcontract Order or concerning either party's performance
under this SSA or a Subcontract Order, or between the PPM and SPM, which
is not resolved by the PPM and SPM, will be promptly escalated to the
co-chairs of the Executive Committee for resolution. If the co-chairs of
the Services Task Force are unable to resolve the dispute within 10 days,
the parties shall proceed in accordance with Section 2.6 (Dispute
Resolution) of the Master Agreement. Neither party shall be compensated
for any time or expenses related to the dispute resolution process.
IV. TERM AND TERMINATION
4.1 Term
This SSA shall commence on its Effective Date and shall remain in effect
until terminated in accordance with this Article IV.
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4.2 TERMINATION OF SSA
Either party may terminate this SSA at any time by providing the other
party with written notice. Any Subcontract Order outstanding at the time
of termination shall continue to be governed by this SSA as if it had not
been terminated, unless the Subcontract Order is terminated in accordance
with Section 4.3 (Termination of Subcontract Order) below.
4.3 TERMINATION OF SUBCONTRACT ORDER
A. A party may terminate a Subcontract Order if the other party is in
material breach of the Subcontract Order and has not cured the breach
within thirty (30) days of written notice specifying the breach. Consent
to extend the cure period shall not be unreasonably withheld, so long as
the breaching party has commenced cure during the thirty day notice period
and pursues cure of the breach in good faith.
B. In addition, Prime Contractor may terminate a Subcontract Order without
opportunity for Subcontractor to cure if the Customer requests removal of
Subcontractor, or if the Prime Contract is amended such that
Subcontractor's Services are no longer required, or if the Prime Contract
is suspended, canceled or terminated. Prime Contractor shall give
Subcontractor notice of such termination as soon as commercially
reasonable.
4.4 EFFECT OF TERMINATION
If a Subcontract Order is terminated under this Article IV (Term and
Termination), both parties will use commercially reasonable efforts to
mitigate fees and expenses and Subcontractor shall promptly deliver copies
of all complete and incomplete deliverable to the Prime Contractor.
Subcontractor shall be paid (a) at the labor rate for Services provided
on a T&M basis and (b) on a percent of completion basis for Services
provided on a fixed price basis. Termination of this SSA and/or any
Subcontract Order shall not limit either party from pursuing any other
remedies available to it, including injunctive relief, nor shall
termination relieve Prime Contractor of its obligation to pay all charges
that accrued prior to such termination. The parties' rights and
obligations under Articles IV, V, VI, VII and VIII shall survive
termination of this SSA and/or any Subcontract Order.
V. RIGHTS IN DEVELOPMENTS
5.1 OPTIONS FOR SUBCONTRACT ORDERS
The parties may agree to include in a Subcontract Order one of the
following provisions, or a different provision, governing rights in
consulting developments, as may be necessary or appropriate under the
applicable Prime Contract and/or in light of other circumstances. When
included in a Subcontract Order, the applicable provision will govern
rights in consulting developments created within the scope of that
Subcontract Order only. If a Subcontract Order contains no terms
allocating rights in developments, then rights in consulting developments
created within the scope of that Subcontract Order shall be allocated
between the parties pursuant to Subsection A (Allocation of Rights per
Master Agreement) below.
A. ALLOCATION OF RIGHTS PER MASTER AGREEMENT
"Rights in any consulting developments created or developed within the
scope of this Subcontract Order shall be allocated as set forth in Article
VI (Ownership and Intellectual Property Rights) of the Master Agreement.
Subcontractor expressly authorizes Prime Contractor to grant to the
Customer a perpetual, non-exclusive, non-transferable, royalty-free
license to use anything developed by Subcontractor within the scope of
this Subcontract Order."
(If the parties wish to allocate rights in developments as set forth in
this Subsection A, but the Prime Contract requires Prime Contractor to
assign ownership rights in developments to the Customer, then
Subcontractor shall sign an agreement with Prime Contractor and Customer
clarifying that ownership rights in developments created by Subcontractor
shall not be assigned to the Customer.)
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B. Assignment to Customer of Copyright in Undefined Deliverables (Excluding
Subcontractor Programs and Modifications, CASE-Generated Subroutines, and
Tools and Utilities), with Right to Reuse and Distribute Substantially
Similar Deliverables
"Contract Property" shall mean those deliverables developed solely for
the Customer under this Subcontract Order except for any Subcontractor
Work(s) that may be developed or that may be embodied in any deliverable
under this Subcontract Order. Subcontractor hereby assigns to Customer all
of its right, title and interest in and to all copyrights in the Contract
Property developed by Subcontractor under this Subcontract Order, provided
Subcontractor and Prime Contractor retain the right to develop, use and
distribute works that are substantially similar to the Contract Property,
including similar in function, structure, sequence, or organization of the
Contract Property. "Subcontractor Work(s)" shall mean: (a) any software
program(s) and documentation owned or distributed by Subcontractor,
including modifications, derivatives and enhancements thereof
("Programs"); (b) any Subcontractor CASE-generated subroutines that are
used in developing or that are embodied in the Contract Property
(excluding any Customer Confidential Information); and (c) any tools or
utilities developed by or on behalf of Subcontractor. Subcontractor
retains all right, title and interest, including all copyrights, in any
Subcontractor Work(s). Subcontractor grants to Customer a non-exclusive,
non-transferable, royalty free, perpetual internal use license to use such
Subcontractor Work(s) that are incorporated into the Contract Property,
and grants to Prime Contractor a non-exclusive, non-transferable, royalty
free, perpetual license to use internally and in consulting engagements
such Subcontractor Work(s) that are incorporated into the Contract
Property; however nothing in this paragraph shall be construed to expand
the Customer's or Prime Contractor's right to use Programs licensed to it
under a separate license agreement.
C. Assignment to Customer of Copyright in Defined Deliverables (Excluding
Subcontractor Programs and Modifications, CASE-Generated Subroutines, and
Tools and Utilities), with No Right to Reuse Deliverables (but Right to
Reuse Intangible Knowledge)
"Contract Property" shall mean those deliverables developed solely for the
Customer under this Subcontract Order which are expressly identified in
this Subcontract Order as "Contract Property," excluding any Subcontractor
Work(s) that may be developed or that may be embodied in any deliverable
under this Subcontract Order. Subcontractor hereby assigns to Customer all
of its right, title and interest in and to all copyrights in the Contract
Property developed by Subcontractor under this Subcontract Order. Neither
Subcontractor nor Prime Contractor shall have any right to retain or reuse
copies of the Contract Property. "Subcontractor Work(s)" shall mean: (a)
any software program(s) and documentation owned or distributed by
Subcontractor, including modifications, derivatives and enhancements
thereof ("Programs"); (b) any Subcontractor CASE-generated subroutines
that are used in developing or that are embodied in the Contract Property
(excluding any Customer Confidential Information); and (c) any tools or
utilities developed by or on behalf of Subcontractor. Subcontractor
retains all right, title and interest, including all copyrights, in any
Subcontractor Work(s). Subcontractor grants to Customer a non-exclusive,
non-transferable, royalty free, perpetual license to use internally such
Subcontractor Work(s) that are incorporated into the Contract Property and
any materials other than Contract Property developed by Subcontractor
under this Subcontract Order, and grants to Prime Contractor a
non-exclusive, non-transferable, royalty free, perpetual license to use
such Subcontractor Works and other materials internally and in consulting
engagements; however nothing in this paragraph shall be construed to
expand the Customer's or Prime Contractor's right to use Programs licensed
to it under a separate license agreement.
Subcontractor and Prime Contractor may freely use the "residuals" from
the Contract Property, provided that they maintain the confidentiality of
Customer's confidential information as required in the Agreement. The term
"residuals" shall mean the ideas, know-how, concepts, and techniques in
intangible form arising from work performed by Subcontractor, which may be
retained by employees (including agents) of Subcontractor and Prime
Contractor who have had access to the Contract Property. Neither
Subcontractor nor Prime Contractor shall have no obligation to limit or
restrict the assignment of its employees, or to pay royalties to Customer
or to one another for any work resulting from the use of residuals.
Customer's copyrights in the Contract Property shall not be deemed to be
violated by: (i) Subcontractor's use of the
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residuals in the course of providing products or services to any other
party, even though the use of such residuals may result in delivery to
such third parties of software, documentation or other products, in whole
or in part, which are substantially similar to portions of the Contract
Property, or (ii) Subcontractor's use of any ideas, concepts, know-how, or
techniques that Subcontractor developed previously in the course of
performing services for other Subcontractor clients, even though the use
thereof may result in delivery to Customer of certain portions of
software, documentation or other products which are substantially similar
to portions of that owned by such Subcontractor clients.
5.2 DELIVERY OF COPIES
Subcontractor shall provide complete copies to Prime Contractor, for
delivery to the Customer, of everything created or developed by
Subcontractor within the scope of any Subcontract Order.
VI. INFRINGEMENT, WARRANTY, AND REMEDY
6.1 INFRINGEMENT INDEMNITY
A. Each party ("Provider") will defend and indemnify the other party
("Recipient") against a claim that any information, design, specification,
instruction, software, data, or material furnished by the Provider
("Material") and used by the Recipient for the Services infringes a
copyright or patent provided that: (a) the Recipient notifies the Provider
in writing within thirty (30) days of the claim; (b) the Provider has sole
control of the defense and all related settlement negotiations; and (c)
the Recipient provides the Provider with the assistance, information, and
authority reasonably necessary to perform the above; reasonable
out-of-pocket expenses incurred by the Recipient in providing such
assistance will be reimbursed by the Provider.
B. The Provider shall have no liability for any claim of infringement
resulting from: (a) the Recipient's use of a superseded or altered release
of some or all of the Material if infringement would have been avoided by
the use of a subsequent unaltered release of the Material which is
provided to the Recipient; or (b) any information, design, specification,
instruction, software, data, or material not furnished by the Provider.
C. In the event that some of all of the Material is held or is believed by
the Provider to infringe, the Provider shall have the option, at its
expense, (a) to modify the Material to be non-infringing; (b) to obtain
for the Recipient a license to continue using the Material; or (c) to
require return of the infringing Material and all rights thereto from the
Recipient. If Subcontractor is the Provider and such return materially
affects Prime Contractor's ability to meet its obligations under the Prime
Contract, then Prime Contractor may, at its option and upon thirty days
prior written notice to Subcontractor, terminate the Subcontract Order and
shall be entitled to recover the fees paid by Prime Contractor for that
portion of the Material prorated over a five year period from the
effective date of the applicable Subcontract Order. If Prime Contractor is
the Provider and such return materially affects Subcontractor's ability to
meet its obligations under the relevant Subcontract Order, then
Subcontractor may, at its option and upon thirty days prior written notice
to Prime Contractor, terminate the Subcontract Order and Prime Contractor
shall pay Subcontractor for the Services rendered through the date of
termination on a T&M or percent of completion basis as applicable. This
Section 6.1 states the parties' entire liability and exclusive remedy for
infringement.
6.2 WARRANTY AND DISCLAIMERS
A. Subcontractor warrants that the Services will be performed consistent with
generally accepted industry standards. Prime Contractor must report any
deficiencies in the Services to Subcontractor in writing within ninety
(90) days of performance of the Services in order to receive warranty
remedies.
B. THE WARRANTY HEREIN IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES
WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
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6.3 EXCLUSIVE REMEDY
A. Subject to Subsection 6.3.B below, for any breach of the above warranty
Prime Contractor's exclusive remedy, and Subcontractor's entire liability,
shall be the re-performance of the Services. If Subcontractor is unable to
re-perform the Services as warranted. Prime Contractor shall be entitled
to recover the fees paid to Subcontractor for the deficient Services.
B. Notwithstanding the foregoing, if the Customer refuses to pay or seeks a
refund of some or all of an invoice and, in Prime Contractor's reasonable
judgment, resolution of the problem will require issuance of a refund or
credit to the Customer, the Prime Contractor and Subcontractor will in
good faith analyze the contributing factors (including without limitation
which party's consultants were involved, whether the work was timely
completed, and the quality of the work) and mutually agree on an
allocation of responsibility for the problem between them as applicable.
Subcontractor will refund or credit, at Subcontractor's option, (as Prime
Contractor and Subcontractor may agree) to the Customer an amount equal to
the total refund or credit granted to the Customer by the Prime Contractor
multiplied by the percentage of responsibility for the problem which the
parties agree to allocate to Subcontractor. Any dispute between Prime
Contractor and Subcontractor concerning this Section shall be referred to
dispute resolution under Section 3.12 (Dispute Resolution) above.
VII. LIMITATION OF LIABILITY, INDEMNITY, INSURANCE
7.1 LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL
SPECIAL OR CONSEQUENTIAL DAMAGES, OR DAMAGES FOR LOSS OF PROFITS, REVENUE,
DATA, OR USE, INCURRED BY EITHER PARTY OR ANY THIRD PARTY, WHETHER IN AN
ACTION IN CONTRACT OR TORT, EVEN IF THE OTHER PARTY OR ANY OTHER PERSON
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NEITHER PARTY'S
LIABILITY FOR DIRECT DAMAGES HEREUNDER SHALL EXCEED THE AMOUNT OF FEES
PAID FOR SERVICES UNDER THE APPLICABLE SUBCONTRACT ORDER. ANY DAMAGES FOR
WHICH PRIME CONTRACTOR IS LIABLE TO A CUSTOMER AS A RESULT OF
SUBCONTRACTOR'S FAILURE TO COMPLY WITH THIS SSA, AND WHICH COULD NOT
REASONABLY BE MITIGATED BY PRIME CONTRACTOR, SHALL BE CONSIDERED DIRECT
DAMAGES FOR PURPOSES OF THIS SSA. NOTWITHSTANDING THE FOREGOING, NO LIMIT
SHALL APPLY TO DAMAGES FOR TANGIBLE OR INTANGIBLE PROPERTY (INCLUDING
SOFTWARE OR DATA) DAMAGE OR LOSS INTENTIONALLY CAUSED BY A PARTY HERETO.
7.2 INDEMNITY
Each party ("Indemnifying Party") shall defend and indemnify the other
party ("Indemnified Party") against any liability, damage, or expense
which the Indemnified Party may sustain, incur, or be required to pay,
arising out of or in connection with claims for personal bodily injury or
wrongful death or damage to real or tangible personal property resulting
from any negligent act or omission of the Indemnifying Party or a person
employed by the Indemnifying Party acting within the scope of his/her
employment in the performance of Services under this SSA while on a
party's or a Customer's premises; provided that:
(a) The Indemnifying Party is notified in writing of any claim promptly
after the Indemnified Party becomes aware of it;
(b) The Indemnifying Party has sole control of the defense of such
claim and of all negotiations for its settlement or compromise; and
(c) The Indemnified Party gives the Indemnifying Party information
reasonably available and assistance necessary to facilitate the
settlement or defense of such claim and, to the extent permitted by
law, the Indemnified Party makes any defenses available to it
available to the Indemnifying Party.
The Indemnifying Party's indemnity obligation under this Section shall be
reduced to the extent by which the liability, damage, or expense results
from the willful misconduct or the negligent act or omission of an
employee(s), or agent(s) of the Indemnified Party, or a third party(ies).
For the purpose of this Section,
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"tangible personal property" shall not include software, documentation,
data, or data files, nor shall the indemnity obligation stated in this
Section apply to damages incurred by use of any software. The
indemnifying Party's indemnity obligation, except that for personal bodily
injury or wrongful death, shall be limited to the amount of the
applicable Subcontract Order.
7.3 INSURANCE
Both parties shall provide the following insurance coverage during the
term of this SSA:
(a) Worker's Compensation Insurance as required by the law;
(b) Employer's Liability Insurance in such customary amounts carried
by employers in like business; and
(c) Comprehensive General Liability and Property Damage Insurance,
including Contractual Liability coverages, as follows:
General Liability $1,000,000 per occurrence
Automobile Liability $1,000,000 combined single limit
Upon written request, each party shall supply the other party with a
certificate(s) of insurance evidencing such coverages.
VIII. GENERAL
8.1 NONDISCLOSURE
Confidential information disclosed by either party and/or by Customers in
connection with this SSA or in connection with Services provided
hereunder shall be subject to the protections specified in Section 11.1
(Nondisclosure) of the Master Agreement.
8.2 FULL CONSULTING ENGAGEMENT LIFE CYCLE
Each party will endeavor to include the other party's consulting
personnel in the full life cycle of appropriate consulting engagements,
rather than using such personnel merely as low-cost resource providers.
However, the Prime Contractor in any consulting engagement shall retain
primary responsibility for project management and staffing for that
engagement.
8.3 SOFTWARE LICENSE
A. The Services provided under this SSA may be in support of a Customer's
license to use computer software programs, owned or distributed by Prime
Contractor or Subcontractor, under a separate software license agreement.
In addition each party may, in the course of providing services to a
Customer, use computer software programs licensed to it by the other
under the Master Agreement or a different software license agreement.
Such software license agreement and/or Master Agreement shall govern all
use by Prime Contractor, Subcontractor and/or the Customer of such
programs. Neither this SSA nor any Subcontract Order includes the grant
of any license or any other rights for such programs.
B. Any Services acquired from Subcontractor shall be bid separately from
such program licenses, and Prime Contractor may acquire either Services
or such program licenses without acquiring the other.
8.4 RELATIONSHIP BETWEEN THE PARTIES
Prime Contractor and Subcontractor are independent contractors; nothing
in this SSA shall be construed to create an employer/employee,
partnership, joint venture, or agency relationship between the parties.
Each party will be solely responsible for payment of all compensation
owned to its employees, as well as employment related taxes. Each party
will maintain appropriate worker's compensation for its employees as well
as general liability insurance.
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
8.5 NO LIENS
All developments, deliverables and materials provided by Subcontractor
under this SSA shall be free of any liens. Subcontractor shall neither
file nor cause or permit to be filed any lien with respect to any such
developments, deliverables or materials, and Subcontractor hereby
expressly waives any right to file or cause to be filed any lien for
itself and for all other persons furnishing labor or materials to
Subcontractor for the Services.
8.6 SAFETY
Subcontractor, its employees, agents, and subcontractors shall comply with
the Customer's reasonable safety and security rules while at a Customer
location, provided such rules do not require drug, alcohol or
psychological testing or random security searches.
8.7 GOVERNING LAW
This SSA, and all matters arising out of or relating to this SSA, shall be
governed by the laws of the State of California, and shall be deemed to be
executed in Redwood City, California.
8.8 JURISDICTION
Any legal action or proceeding relating to this SSA shall be instituted in
any state or federal court in San Francisco or San Mateo County,
California. Subcontractor and Prime Contractor agree to submit to the
jurisdiction of, and agree that venue is proper in, the aforesaid courts
in any such legal action or proceeding.
8.9 NOTICE
All notices, including notices of address change, required to be sent
hereunder shall be in writing and shall be deemed to have been given when
mailed by first class mail to the first address listed in the applicable
Subcontract Order (if to Prime Contractor) or to the Subcontractor address
on the Subcontract Order (if to Subcontractor).
8.10 SEVERABILITY
In the event any provision of this SSA is held to be invalid or
unenforceable, the remaining provisions of this SSA will remain in full
force.
8.11 WAIVER
The waiver by either party of any default or breach of this SSA shall not
constitute a waiver of any other or subsequent default or breach. Except
for actions for nonpayment or breach of either party's intellectual
property rights, no action, regardless of form, arising out of this SSA
may be brought by either party more than one year after the cause of
action has accrued.
8.12 FORCE MAJEURE
Neither party shall be in default or otherwise liable for any delay in or
failure of its performance under this SSA or a Subcontract Order where
such delay or failure arises by reason of any Act of God, or any
government or any governmental body, acts of the common enemy, the
elements, strikes or labor disputes, or other similar or dissimilar cause
beyond the control of such party.
8.13 EXPORT ADMINISTRATION
Each party agrees to comply with all relevant export laws and regulations
of the United States ("Export Laws") to assure that neither any software
deliverable, if any, nor any direct product thereof is (1) exported,
directly or indirectly, in violation of Export Laws or (2) is intended to
be used for any purposes prohibited by the Export Laws, including without
limitation, nuclear, chemical, or biological weapons proliferation.
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
8.14 ASSIGNMENT
Neither party may assign or otherwise transfer any of its rights or
obligations under this SSA without the other party's prior written
consent.
8.15 ENTIRE AGREEMENT
This SSA constitutes the complete agreement between the parties and,
except as provided in Section 8.3 (Software License) above and in any
provisions of the Master Agreement which expressly concern the provision
of consulting services to Customers, supersedes all previous and
contemporaneous agreements, proposals, or representations, written or
oral, concerning the subject matter of this SSA. Neither this SSA nor any
Subcontract Order may be modified or amended except in a writing signed by
a duly authorized representative of each party; no other act, document,
usage, or custom shall be deemed to amend or modify this SSA or an
Subcontract Order. It is expressly agreed that any terms and conditions of
Prime Contractor's purchase order shall be superseded by the terms and
conditions of this SSA and the applicable Subcontract Order.
ORACLE CORPORATION
Signature:_____________________ Signature:_____________________
Name:__________________________ Name:__________________________
Title:_________________________ Title:________________________
Page: D-12
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
ORACLE(R)
INDUSTRY SOLUTIONS INITIATIVE
EXHIBIT A to the SERVICES SUBCONTRACT AGREEMENT
CONSULTING SUBCONTRACT ORDER
____________________________________________________________________________
Date of Services Subcontractor Agreement: __________________________________
Date of this Subcontract Order: __________________________________
Prime Contractor: __________________________________
Subcontractor: __________________________________
Customer Name: __________________________________
Customer Address: __________________________________
__________________________________
__________________________________
A. FOR TIME & MATERIALS ENGAGEMENTS
1. SCOPE OF SERVICES:
2. FEES AND EXPENSES:
a. Time & Materials Rates:
Staffing Level Daily Rate
b. Estimated Total Time & Material Fees:
c. Estimated Total Expenses:
B. FIXED PRICE
1. DELIVERABLES, SCHEDULE AND FEES
Deliverable Delivery Date Payment
2. EXPENSES
C. RIGHTS IN DEVELOPMENTS:
The following shall govern the allocation of rights in consulting
developments created within the scope of this Subcontract Order (check
one):
___ SSA Section 5.1.A: Allocation of Rights per Master Agreement (If
the parties wish to allocate rights in developments as set forth
in SSA Section 5.1.A, but the Prime Contract requires Prime
Contractor to assign ownership rights in developments to the
Customer, then, at Prime Contractor's option, Subcontractor shall
sign an agreement with Prime Contractor and Customer clarifying
that ownership rights in developments created by Subcontractor
shall not be assigned to the Customer.)
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
___ SSA Section 5.2.B: Assignment to Customer of Copyright in Undefined
Deliverables (Excluding Subcontractor Programs and Modifications,
CASE-Generated Subroutines, and Tools and Utilities), with Right to
Reuse and Distribute Substantially Similar Deliverables.
___ SSA Section 5.2.C: Assignment to Customer of Copyright in Defined
Deliverables (Excluding Subcontractor Programs and Modifications,
CASE-Generated Subroutines, and Tools and Utilities), with No Right
to Reuse Deliverables (but Right to Reuse Intangible Knowledge)
(Each deliverable subject to copyright assignment to Customer must
be clearly identified as "Contract Property" in this Subcontract
Order.)
D. OTHER TERMS:
This Consulting Subcontract Order is placed subject to the terms and
conditions herein and in the above-referenced Services Subcontract
Agreement.
ORACLE CORPORATION
Signature:___________________________ Signature:_________________________
Name:________________________________ Name:______________________________
Title:_______________________________ Title:_____________________________
Page: D-14
<PAGE> 56
SUBJECT TO ORACLE MANAGEMENT APPROVAL
ORACLE(R)
INDUSTRY SOLUTIONS INITIATIVE
CONSULTING SUBCONTRACT ORDER
PROJECT IDENTIFICATION ATTACHMENT
Oracle Project ID No. _____________________
<TABLE>
<CAPTION>
<S> <C>
Prime Contractor Contract Administrator: Subcontractor Contract Administrator:
Name: Name:
Address: Address:
Telephone: Telephone:
Fax: Fax:
Prime Contractor Consulting or Education Contact: Subcontractor Consulting or Education Contract:
Name: Name:
Address: Address:
Telephone: Telephone:
Fax: Fax:
Prime Contractor Billing/Accounts Payable Contact: Subcontractor Billing/Accounts Receivable Contract:
Name: Name:
Address: Address:
Telephone: Telephone:
Fax: Fax:
</TABLE>
FOR ORACLE USE WHERE ORACLE IS PRIME CONTRACTOR:
Oracle Customer Agreement Name: ______________________ Date: _______________
ISI Agreement Date: _________________________
FOR ORACLE USE WHERE ORACLE IS SUBCONTRACTOR:
Purchase Order No. ________________________
or
Purchase Order Exemption Acknowledgment:
Prime Contractor does not issue Purchase Orders for Services, however, Prime
Contractor agrees to pay for Services performed under this Subcontract Order, as
specified in the Subcontract Order and/or SSA.
Prime Contractor Purchasing Agent
Signed: ______________________________
Name: ______________________________
Tax Information: ___ (1) Exempt (Attach Tax Exemption Form) ___ (2)
Non-exempt
Page: D-15
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
SERVICES SUBCONTRACT AGREEMENT
CONSULTING RATES ATTACHMENT
Oracle Consulting Rates (Subject to rates as in effect at the time services
are performed)
<TABLE>
<CAPTION>
Grade U.S. U.S. Global
Level Title Rates hourly Rates daily Rate Index
<S> <C> <C> <C> <C>
12 Senior VP $410 $3,210 $2,350
11 Area VP $375 $3,000 $2,150
10 Regional VP $350 $2,800 $2,000
9 Sr. Practice Dir. $335 $2,680 $1,900
8 Practice Dir. $315 $2,520 $1,800
7 Practice Mgr $300 $2,400 $1,700
6M Managing Prin. $265 $2,120 $1,500
6T Sr. Prin. Consult. $265 $2,120 $1,500
5 Principal $230 $1,840 $1,300
4 Senior Consult. $195 $1,560 $1,100
3 Staff Consult. $175 $1,400 $1,000
2 Assoc. Consult. $130 $1,040 $750
1 Admin. $55 $440 $300
Daily Rates = Global Rate Index x applicable Rate Multiplier
</TABLE>
<TABLE>
<CAPTION>
Country Rate Multiplier Country Rate Multiplier
<S> <C> <C> <C>
Argentina 1.0 Japan 1.7
Australia 1.2 Korea 1.2
Austria 1.3 Malaysia 0.8
Balkans 0.5 MEA PQ 1.2
Baltics 0.9 Mexico 0.7
Belgium 1.2 Middle East 1.3
Brazil 1.4 Netherlands 1.1
Canada 1.3 New Zealand 1.0
Caribbean 1.0 Norway 1.2
Central America 1.0 Peru 0.6
Chile 0.8 Phillipines 0.6
China 0.5 Poland 0.9
Columbia 0.6 Portugal 1.0
Czech Republic 0.9 Saudi Arabia 1.2
Denmark 1.4 Singapore 1.2
East Central Europe 0.9 Slovak Republic 0.9
Ecuador 0.6 Slovenia/Croatia 0.8
Finland 1.1 South Africa 0.8
France 1.3 Spain 1.0
Germany 1.5 Sweden 1.1
Greece 1.0 Switzerland 2.2
Hong Kong 1.3 Taiwan 1.1
Hungary 0.7 Thailand 0.7
India 0.5 Turkey 0.8
Indonesia 1.1 United Kingdom 1.3
Israel 0.9 United States 1.4
Italy 0.9 Venezuela 0.7
</TABLE>
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ISI Member Consulting Rates
September 1, 1998 to August 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Role Daily Rate
- ---- ----------
($US)
Associate Consultant 1,500
Product Consultant 1,800
Senior Product Consultant 2,000
Business Consultant 1,800
Senior Business Consultant 2,000
Principal Consultant 2,200
Service Director 2,400
</TABLE>
ASSOCIATE CONSULTANT
- -- Provide basic technical support in a Retek systems environment under the
supervision of more experienced personnel.
- -- Program and test custom modifications using information and input from
product and/or business consultants, obtained during conference room pilot
and/or similar sessions.
SENIOR BUSINESS CONSULTANT/SENIOR PRODUCT CONSULTANT
- -- Make recommendations about the most appropriate way of implementing Retek
applications and of utilizing Retek resources using Retek's implementation
methodologies, while remaining sensitive to the customer's strategic business
drivers, project objectives, resource availability and timeframes.
- -- Work with the customer to develop a common understanding of the future
application architecture, to include business functions by system, and key
interface points between Retek and third party applications.
- -- Provide input to the development of a comprehensive time and action plan for
the implementation of Retek applications within the customer's business
within the desired timeframe
- -- Assess the need, and identify appropriately skilled Retek consultants, for
the project team
- -- Define and co-ordinate the involvement of all Retek consultants for the life
of the project, to include briefing them before each customer trip and
de-briefing regularly regarding status and open issues
- -- Facilitate analysis workshops and end user training sessions, as required, by
assisting the Business and Product Consultants to "map" Retek terminology and
procedures to the customer's business operating environment, agreeing
work-arounds or potential modifications, as required, or advising on
potential changes to current business practices
- -- Co-ordinate the involvement of Retek or integrator representatives to develop
detailed modification specifications and advising the customer on the status
of the modification development and on the delivery and testing of modified
functionality
- -- Identify, research and follow up on key issues identified during training and
consulting engagements and/or communicated directly, and own issues through
to resolution
- -- Produce structured customer follow-up documentation that identifies the key
topics covered, open issues (and their resolution, where possible), issues
for management attention and any next steps
Page: D-17
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
- -- Communicate proactively with all appropriate parties regarding project status
and open issues
- -- Complete all administrative duties related to the project, including the
completion of status reports, as requested, billing reports etc.
- -- Maintain relationships with key individuals within the customer organizations
that the Project Leader is responsible for, to include the overall Retek IS
and business sponsors to identify needs for additional Retek products or
services
- -- Oversee the professional development of Application Consultants by conducting
formal performance evaluations and informal feedback and counseling sessions
- -- Contribute to the on-going development of Retek services methodologies and
toolkits.
BUSINESS CONSULTANT/PRODUCT CONSULTANT
- -- Prepare for visits to customer sites by identifying the objectives to be
achieved during the trip and researching relevant background information
about the customer's intended usage of our products, Retek release level,
planned modifications etc.
- -- Lead workshops, demonstrations and training courses by seeking to understand
the customer's business operating environment, delivering presentations in a
logical and structured manner, encouraging interaction and remaining flexible
to address changing priorities
- -- Identify, research and follow up on key issues identified during customer
trips and/or communicated directly, and own issues through to resolution
- -- Produce structured deliverables and follow-up documentation that identifies
the key topics covered, outstanding issues (and their resolutions, where
possible) and any next steps
- -- Work with the Relationship Manager to identify opportunities for further
Retek involvement and inform them of issues relevant to their customers
- -- Research customer issues as they arise and working with internal Retek
resources to provide a timely response
- -- Act as the customers' "champion" within Retek by identifying issues that may
impact customers and by communicating customer enhancement and modification
requests
- -- Follow department and company operating procedures and guidelines and
contributing to the on-going development of formalized department operating
policies, practices and procedures
- -- Maintain a detailed understanding of Retek product functionality as new
enhancements are added
- -- Support the on-going development of members of the Services team and other
departments by presenting in-house training and demos for Retek products, as
required
- -- Collate "best practice" information from our customers about the different
ways in which they use Retek applications to increase the value that we can
offer on consulting engagements
PRINCIPAL CONSULTANT
- -- In addition to being able to handle those responsibilities associated with
the senior consultant role, principal consultants possess additional
experience and expertise, with excellent functional and/or technical
knowledge of Retek systems and the retail industry. May possess knowledge
and/or experience in highly specialized areas. Should have exceptional
analytical skills, leadership ability and communications skills and interact
independently and appropriately with client and integrator personnel.
SENIOR DIRECTORS
- -- In addition to being able to handle those responsibilities associated with
the principal consultant role, service directors must have experience in
working with the highest levels of client management, exceptional ability to
Pages: D-18
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
communicate and exceptional analytical and problem solving skills. Must be
capable of managing direct reports including hiring, performance evaluations
and problem resolution. Skilled at selling consulting services to clients.
Page: D-19
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
SERVICES SUBCONTRACT AGREEMENT
ORACLE CONSULTING JOB DESCRIPTIONS ATTACHMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SUMMARY OF FUNCTIONAL TECHNICAL Management
JOB TITLES
Associate Consultant Associate Consultant
Staff Consultant Staff Consultant
Senior Consultant Senior Consultant
Principal Consultant Principal Consultant
Senior Principal Consultant Senior Principal Consultant
Managing Principal
Practice Manager
Practice Director
Senior Managers
</TABLE>
- --------------------------------------------------------------------------------
FUNCTIONAL ROLES
JOB TITLE: Associate Consultant (Functional)
QUALIFICATIONS: BS/BA/BBA degree preferred; at least 2 years of industry
experience in manufacturing, distribution or accounting or with
systems company supporting these industries; at least two weeks
of training on at least one of the following: Oracle
Applications and Tools, Datalogix GEMMS, IMI System ESS,
Manugistics, TSW Enterprise or Oracle CPG solution set.
Packaged application implementation, support or development
experience preferred. Should be able to perform independent
work under supervision of project management and interact
appropriately with client and vendor personnel.
JOB TITLE: Staff Consultant (Functional)
QUALIFICATIONS: BS/BA/BBA degree preferred; at least 4 years of industry
experience in manufacturing, distribution or accounting or with
systems company supporting these industries; at least two weeks
of training on at least one of the following packages: Oracle
Applications and Tools, Datalogix GEMMS, IMI System ESS,
Manugistics, TSW Enterprise or Oracle CPG solution set.
Packaged application implementation, support or development
experience preferred. Should be able to perform independent
work under supervision of project management and interact
appropriately with client and vendor personnel. Should have
experience in preparation and execution of project plans,
participation in requirements definition, gathering and
documentation of functional requirements, transformation of
functional requirements into detailed implementation plans.
JOB TITLE: Senior Consultant (Functional)
QUALIFICATIONS: BS/BA/BBA degree preferred; at least 5 years of industry
experience in manufacturing, distribution or accounting or with
systems company supporting these industries; at least four
weeks of training on at least one of the following packages:
Oracle Applications and Tools, Datalogix GEMMS, IMI System ESS,
Manugistics, TSW Enterprise or Oracle CPG solution set.
Packaged application implementation, support or development
experience required. Should be able to perform independent work
with minimal supervision of project management and interact
independently and appropriately with client and vendor
personnel. Should have experience in preparation and execution
of complex project plans, participation in requirements
definition, interviewing users to gather and document
functional requirements, transformation of functional
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requirements into detailed implementation plans. Should be
capable of lending small task oriented project teams,
instructing users and presenting concepts to audiences. Must
possess excellent written and Oracle communication skills.
JOB TITLE: Principal Consultant (Functional)
QUALIFICATIONS: BS/BA/BBA degree preferred, at least 5 years of industry
experience in manufacturing, distribution or accounting or
with systems company supporting these industries: at least
four weeks of training on at least one of the following
packages: Oracle Applications and Tools, Datalogix GEMMS, IMI
System ESS, Manugistics, TSW Enterprise or Oracle CPG
solution set. Packaged application implementation, support or
development experience required. Must have several years of
successful project leadership experience with excellent
functional and/or technical knowledge of systems and industry
served. Must be proficient at project estimating, risk
assessment and work planning. Should have exceptional
analytical skills, leadership ability and communications
skills and interact independently and appropriately with
client and vendor personnel. Should be capable of leading
complex project teams, instructing users and presenting
concepts to management level users.
JOB TITLE: Senior Principal Consultant (Functional with Technical
Expertise)
QUALIFICATIONS: BS/MS degree preferred, at least 5 years of industry
experience in manufacturing, distribution or accounting or
with systems company supporting these industries; at least
two weeks of training on at least one of the following
packages: Oracle Applications and Tools, Datalogix GEMMS, IMI
System ESS, Manugistics, TSW Enterprise or Oracle CPG solution
set. Packaged application implementation, support or
development experience required. Must have outstanding
technical knowledge and credentials which qualify this
individual as an expert in his or her field. Should have
exceptional analytical skills, leadership ability and
communication skills and interact independently and
appropriately with client and vendor personnel. Should be
capable of providing vital project technical assistance that
few consulting personnel are able to provide. This job title
is reserved for exceptional, top-flight technical consultants
who have chosen a technical excellence career track rather
than a management career track.
- -------------------------------------------------------------------------------
TECHNICAL ROLES
JOB TITLE: Associate Consultant (Technical)
QUALIFICATIONS: BS degree preferred plus 2 years programming experience in
open systems development environment. Proficient in one or
more CPG Vender development tools and at least one or more of
the following languages: C, C++, or Pro*C. Proficient in one
or more multi-user operating systems. Knowledgeable or
experienced in database design using Oracle RDBMS.
JOB TITLE: Staff Consultant (Technical)
QUALIFICATIONS: BS degree preferred, 4 years of experience in development of
applications designed around Oracle RDBMS with at least two
years experience in Full Life Cycle development. Proficient in
one or more Oracle or CPG Vendor development tools, plus
either C, C++, or Pro*C. Should have experience in preparation
of detailed relational database designs, participation in
requirements definition, transformation of functional
requirements into detailed designs, plus proficiency in one or
more multi-user operating systems. Should be capable of
interacting with clients independently.
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
JOB TITLE: Senior Consultant (Technical)
QUALIFICATIONS: BS degree preferred, 6 years of experience in development of
applications designed around relational database systems with at
least 4 years of Oracle RDBMS. Should have at least three years
of Full Life Cycle development experience. Proficient in one or
more Oracle or CPG vendor development tools, plus either; C,
C++, or Pro*C, and proficient in one or more multi-user
operating systems. Should be able to assist in the preparation
of project test plans and able to manage complex project tasks.
Should have at least 2 years experience in preparing functional
and system specifications, and functional, system, acceptance
and usability test plans. Capable of conducting interviews with
user management and be able to transform client functional
requirements into detailed information databases and process
model specifications. Must possess excellent written and oral
communication skills.
JOB TITLE: Principal Consultant (Technical)
QUALIFICATIONS: BS degree preferred, 7 to 8 years of experience in development
of applications designed around relational database systems with
at least 5 years of Oracle RDBMS. Should have at least four
years of Full Life Cycle development experience. Must be
proficient in all of either Oracle CDE Tools or an appropriate
CPG vendor development tool with at least 5 years of experience
in either open systems/distributed systems design, networking.
CASE method/tool or RDMBS database administration. Must have
several years of successful project leadership experience with
excellent technical knowledge of open or distributed systems
environment. Must be proficient at project estimation, risk
assessment and work planning. Should have exceptional analytical
skills, leadership ability and communications skills.
JOB TITLE: Senior Principal Consultant (Technical)
QUALIFICATIONS: BS/MS/MBA degree preferred, 7 to 10 years of experience Full
Life Cycle development of applications designed around
relational database systems with 5+ years of Oracle RDMBS. Must
possess highest level of Oracle technical and application skills
and be acknowledged as an industry expert. Must possess in-depth
knowledge of all Oracle CDE Tools or a CPG vendor development
tool. Must have medium to large project management experience
and/or have served as the senior technical resource for
Oracle-based projects. Must be capable of managing multiple
projects. Must have expert knowledge of at least two technical
specialties such as CASE method, database design and
administration, open systems design or networking, experience in
working with senior client technical management, exceptional
ability to communicate and exceptional analytical and problem
solving skills.
- --------------------------------------------------------------------------------
MANAGEMENT ROLES
JOB TITLE: Managing Principal Consultant
QUALIFICATIONS: BS/BA/BBA/MS/MBA degree preferred; at least 5 years of industry
experience in manufacturing, distribution or accounting or with
systems company supporting these industries; at least two weeks
of training on at least one of the following packages: Oracle
Applications and Tools, Datalogix GEMMS, IMI System ESS,
Manugistics, TSW Enterprise or Oracle CPG solution set.
Management of medium to large packaged application
implementation, support or development projects required. Must
be capable of managing multiple projects. Must have expert
knowledge of business processes and practices in at least one
industry, experience in working highest levels of client
management, exceptional ability to communicate and exceptional
analytical and problem solving skills. Must be capable of
managing direct reports including hiring, performance
evaluations and problem resolution. Must be skilled at selling
consulting services to clients.
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
JOB TITLE: Practice Manager
QUALIFICATIONS: BS/BA/BBA/MS/MBA degree preferred; at least 5 years of industry
experience in manufacturing, distribution or accounting or with
systems company supporting these industries. Management of
medium to large packaged application implementation, support or
development projects required. Must be capable of managing
multiple projects. Must have expert knowledge of business
processes and practices in at least one industry, experience in
working highest levels of client management, exceptional
ability to communicate and exceptional analytical and problem
solving skills. Must be capable of managing many direct reports
and intermediate managers including hiring, performance
evaluations, problem resolution, budgeting, training, etc. Must
be expert at selling consulting services and software licenses
to clients and coordinating multiple vendors and functional
departments (sales, services, marketing, etc.) to bring about
successful sales and post-sales client satisfaction.
JOB TITLE: Practice Director
QUALIFICATIONS: BS/BA/BBA/MS/MBA degree preferred; at least 5 years of
industry experience in manufacturing, distribution or
accounting or with systems company supporting these
industries. Management of medium to large packaged application
implementation, support or development projects required. Must
be capable of managing multiple projects. Must have expert
knowledge of business processes and practices in at least one
industry, experience in working highest levels of client
management, exceptional ability to communicate and exceptional
leadership and problem solving skills. Must be currently
managing many direct reports and intermediate managers
including hiring, performance evaluations, problem resolution,
budgeting, training, etc. Must be expert at selling consulting
services and software licenses to clients and coordinating
multiple vendors and functional departments (sales, services,
marketing, etc). to bring about successful sales and
post-sales client satisfaction. Must be capable of being
single point of leadership for large, world-wide client
implementation project.
JOB TITLE: Senior Practice Director, Regional Vice President, All Other
Senior Managers
QUALIFICATIONS: All personnel from Senior Practice Director and up the
management chain who intend to bill clients for services
rendered under an Oracle primed contract with a client must
have their billing level approved in advance and in writing by
the Vice President of Vertical Markets at Oracle or an Oracle
Area Vice-President.
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ORACLE(R)
INDUSTRY SOLUTIONS INITIATIVE
EXHIBIT A to the SERVICES SUBCONTRACT AGREEMENT
CUSTOM EDUCATION SERVICES SUBCONTRACT ORDER
______________________________________________________________________________
Date of Services Subcontractor Agreement: ___________________________________
Date of this Subcontract Order: ___________________________________
ISI Member Name: ___________________________________
Customer Name: ___________________________________
Customer Address: ___________________________________
A. DESCRIPTION OF EDUCATION SERVICES TO BE DELIVERED BY ISI MEMBER
B. FEES AND EXPENSES
C. OTHER TERMS:
This Education Subcontract Order is placed subject to the terms and conditions
herein and in the above-referenced Services Subcontract Agreement.
ORACLE CORPORATION
Signature: ___________________ Signature: ___________________
Name: ________________________ Name: ________________________
Title: _______________________ Title: _______________________
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
ORACLE(R)
INDUSTRY SOLUTIONS INITIATIVE
CUSTOM EDUCATION SERVICES SUBCONTRACT ORDER
PROJECT IDENTIFICATION ATTACHMENT
Oracle Project ID No.__________
Oracle Customer Agreement Name:__________________________ Date:_____________
ISI Agreement Date:________________
<TABLE>
<CAPTION>
<S> <C>
Oracle Contract Administrator: ISI Member Contract Administrator:
Name: Name:
Address: Address:
Telephone: Telephone:
Fax: Fax:
Oracle Education Contact: ISI Member Education Contact:
Name: Name:
Address: Address:
Telephone: Telephone:
Fax: Fax:
Oracle Billing/Accounts Payable Contact ISI Member Billing/Accounts
Receivable Contact:
Name: Name:
Address: Address:
Telephone: Telephone:
Fax: Fax:
</TABLE>
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<PAGE> 67
SUBJECT TO ORACLE MANAGEMENT APPROVAL
SERVICES SUBCONTRACT AGREEMENT
ISI MEMBER EDUCATION PRICING ATTACHMENT
FIXED-FEE COURSES
<TABLE>
<CAPTION>
Technical Training Length Price
<S> <C> <C>
Course
1. Batch Technical Development Course (1 week) 5 days $1750/person/week
2. Online (Forms) Technical Development Course (1 week) 5 days $1750/person/week
3. Technical and Functional Perspectives (1 week) 5 days $3500/person/week
Functional Training
Course
RMS Fundamentals 5 days $1750/person/week
</TABLE>
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
EXHIBIT E
SERVICE LEVEL AGREEMENT
DESCRIPTION OF SERVICES AND MATERIAL
- - REAL TIME TELEPHONE TECHNICAL ASSISTANCE
ISI Member shall provide real time technical assistance to Oracle as
described below. ISI Member shall provide telephone access to its main
support organization through a telephone number dedicated to Oracle
WorldWide Support. Before contacting ISI Member support, knowledgeable
Oracle support specialists in the Oracle WorldWide Support Centers will
have made reasonable efforts to solve problems that are not product
defects. If unable to solve a problem, Oracle WorldWide Support will
deliver problems in a mutually agreed upon format which when appropriate
will contain the necessary information to allow the ISI Member's support
and development organization to recreate the problem for study and
resolution.
Telephone access shall include but not be limited to problem solving, bug
reporting, documentation clarification, and technical guidance from 8:30
AM to 5:30 PM in the time zone where ISI Member's main support
organization in the United States is located. From 7:00 AM to 8:30 AM and
from 5:30 PM to 7:00 PM in the time zone where ISI Member's main support
and development organization in the United States is located, ISI Member
shall provide pager access to a senior ISI Member support representative
familiar with ISI Member Programs and who has access to development
personnel for (but not limited to) problem solving, bug reporting,
documentation clarification and technical guidance. ISI Member will
respond to a page within 30 minutes to begin analysis of the problem.
Access to a senior ISI Member support representative familiar with ISI
Member Programs and who has access to development personnel who should be
available 24 hours a day 7 days a week by pager to respond to TARs of
Severity Level 1 as defined below. Pager access may also be used for the
escalation of existing TARs to Severity Level 1. In either case ISI Member
will respond to a page within 30 minutes to begin analysis of the problem.
- - DOCUMENTATION
ISI Member shall supply five complete sets of system level and user level
documentation to Oracle WorldWide Support in Redwood City, California for
distribution to Oracle's WorldWide Support Super Centers. Updates to this
documentation shall be supplied in a timely manner as they become
available and in the form available at such time, but no later than 30
days before shipment to any Oracle customer of a beta release of the
applicable software update (provided, however, that such 30 day
requirement shall not serve to delay ISI Member from shipping beta
software to an Oracle customer and ISI Member provides to Oracle such
documentation at the same time of the initial shipment to an Oracle
Customer), or 90 days before shipment to any Oracle customer of a
production release of the applicable software update (whichever is
earlier). Initial versions of the documentation may be draft releases.
- - PROGRAM TECHNICAL SUPPORT UPDATES
Patches and fixes
General maintenance releases
Functional releases
The ISI Member shall support the current release and the immediately prior
release of the ISI Member Programs. Back porting will be required for any
patch or fix that corrects a problem reported against any release of an
ISI Member Program which is not the then-current release (e.g., where the
current release of an ISI Member Program is a later release than the one
incorporated in the then-current Oracle Solution
Page: E-1
<PAGE> 69
SUBJECT TO ORACLE MANAGEMENT APPROVAL
Suite version), where the reported problem has already been corrected in
the then-current release of the ISI Member Program.
- - SUPPORT SYSTEMS ACCESS
ISI Member shall provide reasonable access to the information contained in
ISI Member's support call tracking system as it relates to Oracle's
support of the ISI Member Programs. This information will be available to
Oracle through real time interface with any third party software or
translation and production costs borne by Oracle. Oracle and ISI Member
will work together to evaluate the scope of the effort and appropriate
timing of developing further interfaces between Oracle's and ISI Member's
support systems.
- - MAIL SERVER ACCESS
Electronic mail, via the internet, can serve as a means for Oracle
WorldWide Support to enter Severity 2 and 3 TARs after ISI Member's normal
business hours, to escalate incidents to ISI Member and to send status
updates.
TECHNICAL ASSISTANCE REQUEST (TAR) SEVERITY LEVELS
The chart below lists the standard Technical Assistance Request Severity Levels.
ISI member shall use commercially reasonable efforts to respond to Oracle's
requests with respect to the ISI Member Programs based on the Severity Levels
set forth below.
Severity Level
SEVERITY 1
Critical Business Impact
Customer's production environment is stopped or so severely impacted that
Customer cannot reasonably continue to work. If Oracle WorldWide Support find it
necessary to contact ISI Member either by phone during ISI Member normal
business hours (as specified above) or by pager after normal business hours ISI
Member shall respond within 30 minutes. ISI Member shall work around the clock
in providing a fix or acceptable work around to Oracle WorldWide Support for
Customer for a Severity 1 problem. Oracle shall provide ISI Member with
reasonable and continuous assistance until such a fix or acceptable work around
is provided or the TAR is downgraded.
ESCALATED SEVERITY 2
Escalated Severe business Impact
Customer's issue was originally designated as a Severity 2, Severe Business
Impact; however Customer's severity level is being escalated to this Escalated
Severity 2 by Customer. ISI Members shall use commercially reasonable efforts to
provide a fix or acceptable work around which Oracle WorldWide Support may
deliver to the Customer in less than or equal to 3 calendar days from the date
of escalation.
SEVERITY 2 BACKPORT
Severe Business Impact
A patch exists to resolve customer's issue but is not available for Customer's
platform and/or Customer's release of the products causing the impact. ISI
Member shall use commercially reasonable efforts to provide a fix or acceptable
work around which Oracle WorldWide Support may deliver to the Customer in less
than or equal to 3 calendar days of the request from Oracle WorldWide Support.
SEVERITY 2
Severe Business Impact
Customer's production environment is continuing (not stopped) however, there is
serious impact on the Customer's productivity and/or service levels. If Oracle
WorldWide Support finds it necessary to contact ISI Member by phone during the
above normal business hours ISI Member shall respond within 2 hours. In the
event Oracle
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
WorldWide Support contacts ISI Member via electronic messaging outside normal
business hours ISI Member shall respond within 2 hours of the resumption of
normal business hours. ISI Member shall use commercially reasonable efforts to
provide a fix or acceptable work around with Oracle WorldWide Support may
deliver to Customer in less than equal to 3 calendar days of the request form
Oracle WorldWide Support.
SEVERITY 3
Minor Business Impact
Customer is in full working mode, there is no work being impeded at the time,
information or solutions are requested by the Customer as soon as possible to
answer the question or correct the problem. If Oracle WorldWide Support finds it
necessary to contact ISI Member by phone during the above normal business hours
ISI Member shall respond within 1 business day. In the event Oracle WorldWide
Support contacts ISI Member via electronic messaging outside normal business
hours ISI Member shall respond within 2 hours of the resumption of normal
business hours. ISI Member shall use commercially reasonable efforts to provide
a solution which Oracle WorldWide Support may deliver to Customer within 7 days
of the request from Oracle WorldWide Support. This solution may be in the form
of a patch, work around, or fix included in a subsequent or next release.
***
FIRST LINE SUPPORT BY ORACLE
The expectations for first line support by Oracle of ISI Member Programs are as
follows:
Technical support will be available through the Oracle WorldWide Support
Centers for ISI Member Programs including those that do not use the
Oracle technologies.
All communication with customers including initial recording of issues,
interim follow-up on issue resolution status, and final delivery of
fixes will be coordinated through Oracle WorldWide Support Centers.
Oracle WorldWide Support Centers will answer all functional and business
related questions concerning ISI Member Programs (e.g., not software
code related issues).
Oracle WorldWide Support Centers will answer all initial operations
related questions such as configuration options, database
setup/optimization, hardware configurations and other related
environment issues for Oracle Based Programs.
Oracle WorldWide Support Centres will answer all production operations
related questions such as abnormal job terminations related to
environment issues such as inadequate disk space, database
configuration and other related environment issues for Oracle based
Programs.
For software related issues, Oracle WorldWide Support Centers will
research the reported issue, recreate the Issue in their testing
environment, and research the potential causes of the issue.
Dial-in access to the Oracle WorldWide Support Centers test systems must
be available to ISI Member to allow visibility to any reproduced
problems as a transition step to ISI Member's support group.
Page: E-3
<PAGE> 71
SUBJECT TO ORACLE MANAGEMENT APPROVAL
EXHIBIT F
CERTIFICATION FOR SOFTWARE
This questionnaire can cover one complete product, even if that product includes
multiple modules.
Please leave no questions blank. Write "not applicable" or "N/A" if a question
is not relevant to the furnished software material.
________________________________________________________________________________
1. Was my portion of the software material (including screen graphics)
written by anyone other than ISI Member or its employees (i.e. consultants
or independent contractors) within the scope of their employment?
YES NO X
------ ------
If YES, provide, here or as an attachment, the following information:
A) Identify the portion(s):
B) i. Specify for each portion the name, address, and citizenship of
each source:
ii. If the source is not the actual author, how did it acquire
title to the software material (e.g. software material was
written by company's employees within the scope of their
employment)?
iii. If the source is an individual, did he/she create the software
material while employed by or under contractual relationship
with another party?
YES NO
------ ------
If YES, provide the name and address of the other party and
explain the nature of the contractual relationship:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
C) How did ISI Member acquire title to the software material written
by the other party?
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
2. Are or were any copyright, confidentiality, or proprietary notice(s)
present on the software material(s)?
YES X NO
------ ------
If YES, please describe such notice(s):
SECURED COPYRIGHT IMMEDIATELY ON EACH RELEASE OF SOFTWARE
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
3. Was any portion of the software material derived from preexisting code
(either yours or a third party's), including any code from freeware,
shareware, electronic bulletin boards, or the Internet?
YES NO X
----- -----
If YES, please identify the material, author, owner, and copyright notice,
if any, for each of the preexisting materials:
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
4. Provide, as an attachment, an explanation of any other circumstance which
might affect Oracle's ability to reproduce, distribute, and market this
software material, including:
Whether your software material was prepared from any preexisting materials
which have any:
a) confidentiality or trade secret restrictions to others;
b) known or possible royalty obligations to others;
c) other preexisting materials developed for another party or customer
(including government) where ISI Member may not have retained full
rights to such other preexisting materials.
5. ISI Member recognizes that, for copyright registration or enforcement of
legal rights relating to the furnished software material, Oracle may need
ISI Member to produce additional information related to the software
material. ISI Member hereby agrees to cooperate with Oracle and provide
such information to Oracle at Oracle's request.
As an authorized representative of ISI Member, I hereby agree and certify the
above to be true, accurate, and complete.
By: signed
------------------------------
Signature
David Tidmarsh
------------------------------
Name (Type or Print)
Vice President
------------------------------
Title
5/15/98
------------------------------
Date
ORACLE CONFIDENTIAL WHEN COMPLETED
Page: F-2
<PAGE> 73
SUBJECT TO ORACLE MANAGEMENT APPROVAL
EXHIBIT G
INDUSTRY SOLUTIONS INITIATIVE MULTI-PARTY NONDISCLOSURE AGREEMENT
ORACLE(R)
INDUSTRY SOLUTIONS INITIATIVE
MULTI-PARTY NONDISCLOSURE AGREEMENT
The parties whose representatives' signatures appear on the attached Signature
Page (the "Parties") are members of the Oracle Corporation Industry Solutions
Initiative for development and marketing of, and conduct of other activities
related to, application software suites targeted to specific industries. In the
course of such activities, the Parties anticipate that each of them will have
access to information that others consider proprietary and confidential. To
protect the confidentiality of such information, the Parties hereby agree that:
1. Definition Of "Confidential Information". For purposes of this Multi-Party
Nondisclosure Agreement ("MPNDA"), "Confidential Information" shall mean:
(a) computer software in object code (not source code) form; (b)
software-related documentation, designs and specifications, methods and
methodologies, release management and version control standards,
localization support requirements and technical reference manuals; (c)
software-related business and marketing information and information
related to a Party's customers and customer opportunities; (d) any other
information to which a Party ("Receiving Party") has access at the
premises or on a corporate computer network of another Party ("Disclosing
Party"); and (e) any information not described in (a)-(d) above which is
marked confidential, or is identified as confidential at the time of
disclosure and is also summarized and designated as confidential in a
written memorandum delivered to the Receiving Party within thirty (30)
days of the disclosure. The Parties shall not disclose source code to each
other under this MPNDA.
2. Authorized Use. A Receiving Party shall use Confidential Information of a
Disclosing Party only for the purposes of developing, marketing,
supporting and providing training and implementation services for
application software suites in connection with the Oracle Corporation
Industry Solutions Initiative, and other activities directly related to
the foregoing.
3. Duty Of Protection. A Receiving Party shall protect the disclosed
Confidential Information by using the same degree of care, but not less
than a reasonable degree of care, to prevent the unauthorized use,
dissemination or publication of the Confidential Information as the
Receiving Party uses to protect its own Confidential Information of a like
nature. The Parties agree not to make each other's Confidential
Information available in any form to any person or company which is not a
Party or an employee of a Party. Each Party agrees to permit disclosure of
the Confidential Information only to those of its employees who have a
"need to know", and to take all reasonable steps to ensure that
Confidential Information of other Parties is not disclosed or distributed
by its employees in violation of the provisions of this MPNDA.
4. Period Of Protection. A Receiving Party's duty to protect Confidential
Information disclosed under this MPNDA expires five (5) years after the
date of disclosure (except object code and any related technical
documentation, which obligations will remain in effect in perpetuity),
unless another agreement in effect between the Disclosing Party and the
Receiving Party provides a longer protection period for such Confidential
Information.
5. Exclusions From Duty Of Protection. This MPNDA imposes no obligation upon
a Receiving Party with respect to Confidential Information which (a) was
in the Receiving Party's possession before receipt from the Disclosing
Party; (b) is or becomes a matter of public knowledge through no fault of
the Receiving Party; (c) is rightfully received by the Receiving Party
from a third party without a duty of confidentiality; (d) is disclosed by
the Disclosing Party to a third party without a duty of confidentiaility
on the third party;
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
(e) is independently developed by the Receiving Party; (f) is disclosed
under operation of law: or (g) is disclosed by the Receiving Party with
the Disclosing Party's prior written approval.
6. Title. All Confidential Information shall remain solely the property of
the Disclosing Party. A Receiving Party acquires no intellectual property
rights to the Confidential Information under this MPNDA except the limited
right to use set out in Paragraph 2 above.
7. No Obligation to Purchase. This MPNDA imposes no obligation on any Party
to purchase or otherwise acquire any service or item from another Party.
8. Independent Development/Freedom of Action. Each party acknowledges that
the other Parties are in the software development business. This MPNDA
shall not preclude any Party from developing, using, marketing, licensing,
and/or selling any independently developed software which has the same or
similar functionality as any product owned or distributed by another
Party, so long as such activities do not constitute breach of this MPNDA
or infringe the intellectual property rights of such other Party.
9. Period of Disclosure/Receipt. This MPNDA controls only Confidential
Information which is disclosed by or to a Party between the date such
Party signs this MPNDA (as indicated on the Signature Page) and the date
such Party withdraws from this MPNDA. A party may withdraw from this
MPNDA upon written notice to all other Parties hereto, delivered to such
other Parties at the addresses written on the Signature Page provided that
such Party's obligations hereunder shall survive such withdrawal.
10. Independent Contractors. The Parties are independent contractors, and do
not intend that any agency or partnership relationship be created among
them by this MPNDA.
11. Modifications: Addition/Deletion of Parties. All additions or
modifications to this MPNDA, including any additions to or deletions from
the Signature Page, must be made in writing and must be signed by all
Parties.
12. Governing Law. This MPNDA is made under and shall be construed according
to the laws of the State of California.
13. Order of Precedence. In the event of a conflict or inconsistency between
this Agreement and any Industry Solutions Initiative Master Agreement
between any two parties hereto, the Industry Solutions Initiative Master
Agreement shall control with respect to the rights and obligations of
those parties.
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<PAGE> 75
SUBJECT TO ORACLE MANAGEMENT APPROVAL
ORACLE(R)
INDUSTRY SOLUTIONS INITIATIVE
MULTI-PARTY NONDISCLOSURE AGREEMENT
SIGNATURE PAGE
________________________________________________________________________________
NOTE: THIS SIGNATURE PAGE MUST BE RE-EXECUTED BY ALL PARTIES UPON ANY ADDITION
OF A PARTY TO, OR DELETION OF A PARTY FROM, THIS SIGNATURE PAGE.
<TABLE>
<CAPTION>
<S> <C>
Company: Oracle Corporation Company: _________________________
Address: 500 Oracle Parkway Address: _________________________
Redwood City, CA 94065 _________________________
U.S.A. _________________________
Signature: _________________________ Signature:_________________________
Name: _________________________ Name: _________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
Company: _________________________ Company: _________________________
Address: _________________________ Address: _________________________
_________________________ _________________________
_________________________ _________________________
Signature: _________________________ Signature:_________________________
Name: _________________________ Name: _________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
Company: _________________________ Company: _________________________
Address: _________________________ Address: _________________________
_________________________ _________________________
_________________________ _________________________
Signature: _________________________ Signature:_________________________
Name: _________________________ Name: _________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
</TABLE>
Page: G-3
<PAGE> 76
SUBJECT TO ORACLE MANAGEMENT APPROVAL
EXHIBIT H
KEY PERSONNEL
Relationship Managers
Oracle Relationship Manager:
ISI Member Relationship Manager:
Personnel Authorized to Have Access to Restricted Materials
<TABLE>
<CAPTION>
Company Name Location
------- ---- --------
<S> <C> <C>
Oracle [*] [*]
Oracle [*] [*]
Oracle [*] [*]
Oracle [*] [*]
Retek [*] [*]
Retek [*] [*]
Retek [*] [*]
Retek [*] [*]
Retek [*] [*]
Retek [*] [*]
Retek [*] [*]
Retek [*] [*]
Retek [*] [*]
Retek [*] [*]
Retek [*] [*]
Retek [*] [*]
</TABLE>
Development Lab Systems Administrator
<TABLE>
<CAPTION>
Name Title Location
---- ----- --------
<S> <C> <C>
</TABLE>
[ * ] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
Page: H-1
<PAGE> 77
SUBJECT TO ORACLE MANAGEMENT APPROVAL
EXHIBIT I
ORACLE'S CURRENT ISI NETWORK ACCESS AGREEMENT
ORACLE(R)
INDUSTRY SOLUTIONS INITIATIVE
NETWORK ACCESS AGREEMENT
- --------------------------------------------------------------------------------
Effective Date: 5/15 1998
----------------, ----,
ISI Member: Retek Information Systems
--------------------------
Address: 801 Nicollet Mall, 11th Floor
-----------------------------
Minneapolis MN 55402
-----------------------------
-----------------------------
This Agreement is made by and between Oracle Corporation ("Oracle"), a
California corporation located at 500 Oracle Parkway, Redwood City, California,
94065 and the ISI Member identified above. Oracle and the ISI Member agree as
follows:
1. Network Usc, Oracle grants the ISI Member and its authorized personnel
listed in Exhibit B (Key Personnel) to the Industry Solutions Initiative
Master Agreement dated _______________ between the ISI Member and Oracle
(the "Master Agreement") the nonexclusive, revocable right, subject to the
terms of this Agreement, to obtain access to and use Oracle's Network (the
"Network"). (Such ISI Member personnel shall be referred to in this
Agreement as "Authorized Personnel.") The rights under this Agreement are
granted only for so long as such persons are employed by the ISI Member
and only after such Authorized Personnel have signed an agreement with the
ISI Member that enables the ISI Member to comply fully with this
Agreement. The Network is defined as any communication channels connecting
Oracle data devices to each other and may interface devices owned,
operated, administered, maintained, leased or otherwise controlled by
Oracle, that are used to connect those channels to other channels or are
used to provide a user interface to those channels that are necessary to
accomplish the Permitted Uses specified in Paragraph 2 below.
Additionally, the ISI Member shall provide a copy of this Agreement to the
Authorized Personnel before they are allowed access to the Network under
this Agreement. The list of Authorized Personnel may be modified as
provided in the Master Agreement. The ISI Member agrees to notify Oracle
within a reasonable time period when any of the Authorized Personnel cease
being employed by the ISI Member. For purposes of this Agreement, the term
"ISI Member" shall include both the ISI Member and its Authorized
Personnel.
The ISI Member agrees to comply with all instructions given by the Oracle
Data Centre.
2. Permitted Uses. The ISI Member's access to and use of the Network shall be
only for the purposes set out below.
a. Reason for access:
Integration of ISI Member Programs with Oracle Programs and ISI Co-Member
Programs for development of Oracle Solution Suite(s) as such terms are
defined in the Master Agreement.
b. Ultimate server and/or data device to be accessed:
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
a. Type of Activity (e.g., email, read, transfer and/or edit files):
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
The above-listed purposes shall constitute the sole "Permitted Uses"; any
other use of the Network and any data devices attached thereto is strictly
prohibited and may subject the ISI Member to civil and criminal
prosecution. Such prohibited uses include, but are not limited to,
negligently or knowingly doing the following:
a. Using unauthorized resources;
b. Exhausting Network resources;
c. Modifying, viewing, copying or obtaining programs or data if not
authorized to do so;
d. Inserting any program or data except for the Permitted Uses;
e. Causing fees to Oracle;
f. Changing the topology of the Network.
3. Fees. Remote access to and use of the Network shall be at the ISI Member's
expense. Oracle shall not charge the ISI Member any fees for use of the
Network.
4. Equipment and Access Procedures. Oracle shall provide the ISI Member with
certain equipment and/or passwords to enable the Authorized Personnel to
access the Network (the "Equipment"). The ISI Member shall not share
Equipment located off Oracle's premises with any third party. The ISI
Member shall take reasonable steps to secure physical access to the
Equipment and shall use passwords in compliance with Oracle's password
policy. The ISI Member agrees to assume sole responsibility for the
Equipment and to pay Oracle replacement costs for any damage to or loss of
the Equipment, other than normal wear and tear, caused by the ISI Member
or while the Equipment is in the ISI Member's possession. The ISI Member
agrees to notify, and is solely responsible for notifying Oracle of the
loss, damage or theft of the Equipment by the most expeditious means
available. Oracle reserves the right to modify the procedures and hardware
needed to access the Network at any time.
5. Term. Either party may terminate this Agreement at any time. Oracle
reserves the right to disconnect the ISI Member from the Network at any
time, without warning of any kind. Upon termination, the ISI Member shall
immediately cease accessing and using the Network and shall immediately
return the Equipment to Oracle.
6. Nondisclosure and Ownership. The terms of Section 15.1 (Nondisclosure) of
the Master Agreement shall apply to this Agreement, as well as the
following terms.
Oracle shall use the same degree of care to protect the confidentiality of
ISI Member-Confidential Information placed on the Network that Oracle
uses to protect the confidentiality of its own Confidential Information
residing or travelling in the same environment on the Network.
The ISI Member acknowledges and agrees that Oracle is the owner of the
Network and all data contained therein. Nothing in this Agreement shall be
construed to transfer any proprietary rights of one party to the other. In
no event shall Oracle obtain any ownership rights in or to the ISI
Member's proprietary software or data as a result of such software or data
being placed on or transferred through the Network. The ISI Member agrees
that Oracle may offer use and access to the Network to other parties.
The ISI Member agrees that a breach of the confidentiality provisions of
this Agreement will breach the security of Oracle's Network and data
devices attached thereto and therefore would cause irreparable harm to
Oracle for which no adequate remedy at law exists, and the ISI Member
therefore agrees that, in addition to any other remedies available, Oracle
shall be entitled to injunctive relief to enforce the terms of this
Agreement.
7. Warranty Disclaimer/Limitation of Liability. THE ISI MEMBER ACCEPTS ACCESS
TO THE NETWORK ON AN
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<PAGE> 79
SUBJECT TO ORACLE MANAGEMENT APPROVAL
"AS IS" BASIS. ORACLE MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND
WITH RESPECT TO PERFORMANCE, DATA QUALITY, ACCESSIBILITY OR INTEGRITY OF
THE NETWORK, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE OR MERCHANTABILITY. ORACLE ASSUMES NO RESPONSIBILITY
IN CONNECTION WITH THE ISI MEMBER'S ACCESS TO OR USE OF THE NETWORK.
8. Liability/Indemnification. EACH PARTY'S LIABILITY FOR DAMAGES ARISING OUT
OF OR IN CONNECTION WITH THIS AGREEMENT SHALL BE GOVERNED BY THE MASTER
AGREEMENT, INCLUDING WITHOUT LIMITATION SECTION 14.3 (LIMITATION OF
LIABILITY) THEREOF.
9. Assignment. Each party's right to assign its rights and delegate its
obligations hereunder shall be governed by the same terms as those
specified in the Master Agreement.
10. Governing Law. This Agreement is made and entered into by the parties in
the State of California and shall be construed according to the laws of
that state.
11. Export Administration. The ISI Member agrees to comply fully with all
relevant export laws and regulations of the United States ("Export
laws") and agrees that no Confidential Information or Equipment, or any
direct product thereof, is exported, directly or indirectly, in violation
of Export laws.
12. Severability and Entire Agreement. In the event any provision of this
Agreement is held to be invalid or unenforceable, the remaining
provisions of this Agreement will remain in full force.
This Agreement sets forth the entire agreement between the parties
concerning its subject matter and supersedes all prior or contemporaneous
agreements, whether written or oral. All additions or modifications in
this Agreement must be made in writing and must be signed by both
parties.
<TABLE>
<CAPTION>
<S> <C>
ORACLE CORPORATION ISI MEMBER
Authorized by: By:XXXXXXXXXXX
---------------------- ----------------
Name: Name: David Tidmarsh
---------------------- ---------------
Title: Title: Vice President
---------------------- ----------------
</TABLE>
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<PAGE> 80
SUBJECT TO ORACLE MANAGEMENT APPROVAL
EXHIBIT J
MINIMUM SUBLICENSE FEES
Page: J-1
<PAGE> 81
September 8, 1998
Retek Information Systems, Inc.
ISI Minimum Sublease Schedule
<TABLE>
<CAPTION>
Minimum License Fee due to Retek
--------------------------------------------------------
[ * ] Joint Model Supported Model
------------------- -------------------
Product Base Per User Base Per User Comments
- ------- ------ ---------- ------ ---------- --------
<S> <C> <C> <C> <C> <C>
RMS [*] [*] [*] [*] [*]
ARI [*] [*] [*] [*] [*]
Trade Mgmt [*] [*] [*] [*] [*]
Retek Warehouse Management [*] [*] [*] [*] [*]
RDF [*] [*] [*] [*] [*]
RDW [*] [*] [*] [*] [*]
RTBT [*] [*] [*] [*] [*]
</TABLE>
[*]
<TABLE>
<CAPTION>
Minimum License Fee due to Retek
--------------------------------------------------------
Joint Model Supported Model
------------------- -------------------
Product Base Per User Base Per User Comments
- ------- ------ ---------- ------ ---------- --------
<S> <C> <C> <C> <C> <C>
RMS [*] [*] [*] [*] [*]
ARI [*] [*] [*] [*] [*]
Trade Mgmt [*] [*] [*] [*] [*]
Retek Warehouse Management [*] [*] [*] [*] [*]
RDF [*] [*] [*] [*] [*]
RDW [*] [*] [*] [*] [*]
RTBT [*] [*] [*] [*] [*]
</TABLE>
[*]
<TABLE>
<CAPTION>
Minimum License Fee due to Retek
--------------------------------------------------------
Joint Model Supported Model
------------------- -------------------
Product Base Per User Base Per User Comments
- ------- ------ ---------- ------ ---------- --------
<S> <C> <C> <C> <C> <C>
RMS [*] [*] [*] [*] [*]
ARI [*] [*] [*] [*] [*]
Trade Mgmt [*] [*] [*] [*] [*]
Retek Warehouse Management [*] [*] [*] [*] [*]
RDF [*] [*] [*] [*] [*]
RDW [*] [*] [*] [*] [*]
RTBT [*] [*] [*] [*] [*]
</TABLE>
[*]
<TABLE>
<CAPTION>
Minimum License Fee due to Retek
--------------------------------------------------------
Joint Model Supported Model
------------------- -------------------
Product Base Per User Base Per User Comments
- ------- ------ ---------- ------ ---------- --------
<S> <C> <C> <C> <C> <C>
RMS [*] [*] [*] [*] [*]
ARI [*] [*] [*] [*] [*]
Trade Mgmt [*] [*] [*] [*] [*]
Retek Warehouse Management [*] [*] [*] [*] [*]
RDF [*] [*] [*] [*] [*]
RDW [*] [*] [*] [*] [*]
RTBT [*] [*] [*] [*] [*]
</TABLE>
[*]
<TABLE>
<CAPTION>
Minimum License Fee due to Retek
--------------------------------------------------------
Joint Model Supported Model
------------------- -------------------
Product Base Per User Base Per User Comments
- ------- ------ ---------- ------ ---------- --------
<S> <C> <C> <C> <C> <C>
RMS [*] [*] [*] [*] [*]
ARI [*] [*] [*] [*] [*]
Trade Mgmt [*] [*] [*] [*] [*]
Retek Warehouse Management [*] [*] [*] [*] [*]
RDF [*] [*] [*] [*] [*]
RDW [*] [*] [*] [*] [*]
RTBT [*] [*] [*] [*] [*]
</TABLE>
[ * ] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE> 82
SUBJECT TO ORACLE MANAGEMENT APPROVAL
EXHIBIT K
GRANDFATHERED CUSTOMERS
<TABLE>
<CAPTION>
US GERMANY
<S> <C>
- - [ * ] - [ * ]
- - Ames - [ * ]
- - [ * ] - [ * ]
- - [ * ] - Strauss Innovation
- - [ * ] - [ * ]
- - [ * ] - [ * ]
- - [ * ] - [ * ]
- - Cato - [ * ]
- - Eckerd Drug - [ * ]
- - Finlay
- - [ * ]
- - Kohl's SOUTH AFRICA
- - LL Bean - [ * ]
- - [ * ]
- - [ * ]
- - [ * ] HOLLAND
- - [ * ] - [ * ]
- - [ * ]
- - [ * ]
- - [ * ]
- - [ * ]
- - [ * ]
- - [ * ]
- - Sears Canada
- - [ * ]
- - [ * ]
- - Talbots
- - [ * ]
FRANCE
- - [ * ]
- - [ * ]
- - [ * ]
UK
- - [ * ]
- - New Look
- - [ * ]
- - [ * ]
- - [ * ]
- - C&A
PORTUGAL
- - Sonae
</TABLE>
[ * ] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE> 83
SUBJECT TO ORACLE MANAGEMENT APPROVAL
EXHIBIT L
ISI MEMBER NET GROWTH AND PROFIT MARGIN
<PAGE> 84
Retek Information Systems, Inc.
Consolidated Quarterly Income Statements
For the Period Ended
($000's/USA)
<TABLE>
<CAPTION>
<S> <C>
1996 YTD 1Q97 2Q97 3Q97 4Q97 1997YTD 1Q98 2Q98 2Q98YTD
-------- ---- ---- ---- ---- --------- -------- -------- ---------
$ $ $ $ $ $ %YOY $ Change $ %YOY $ %YOY
Change Change Change
Revenue [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Cost of Sale [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Gross Margin [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Operating Expenses [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Operating Income [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
Operating Margin [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
NOTES:
1. The organization's Financial performance has been revenue growth in
excess [ * ] with an operating margin in excess [ * ].
2. However, quarterly performance have and will be fluctuated to facilitate HNC
overall financial performance in achieving the external financial Community's
expectations. For example,
(A) The first quarter of 1997 Retek's operating income performance [ * ]
well in excess of commitment or targeted levels [ * ].
(B) [ * ].
3. Retek's 1998 YTD performance [ * ].
[ * ] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE> 85
SUBJECT TO ORACLE MANAGEMENT APPROVAL
EXHIBIT M
ISI MEMBER TRADEMARK GUIDELINES
<PAGE> 86
SUBJECT TO ORACLE MANAGEMENT APPROVAL
TRADEMARK GUIDELINES
RETEK INFORMATION SYSTEMS
9/7/98
Oracle Retail Identity -- "Oracle Retail" and "Retek Enabled" should always be
used together on the same page except in Direct mail, in which case they
should both appear somewhere in the direct mail piece.
1. Offering Name: Oracle Retail
Tag Line: The Guaranteed Advantage
(See exhibit for layout)
2. Logo: Retek Enabled
Can be no smaller than 3/8" wide
Should be scaled no smaller than 75% of "Oracle Retail" identity
(See exhibit for layout)
* HNC
Corporate Identity
1. All collateral must include the following wording. "An HNC Software
company" after the name Retek Information Systems.
<PAGE> 87
"ORACLE RETAIL"
________________________________________________________________________________
[ORACLE RETAIL LOGO]
________________________________________________________________________________
"RETEK ENABLED"
[RETEK LOGO]
<PAGE> 88
SUBJECT TO CHANGE
ORACLE TECHNICAL SUPPORT SERVICES
TECHNICAL SUPPORT FEES
Technical Support fees are due and payable in advance of the term of Support.
REINSTATEMENT FEES
In the event Technical Support services lapse or were never originally procured,
a reinstatement fee shall be assessed upon commencement of Technical Support,
such fee shall be subject to Oracle's policies in effect when Technical Support
is ordered. Oracle currently calculates Reinstatement Fees from the date that
the Technical Support services lapse (or the license order date if the program
licenses were not previously supported) to the date that the technical support
services are renewed based on the list Bronze support fees in Oracle's US Price
List in effect at the time the Technical Support services are ordered.
SUPPORT PROGRAMS
Oracle Bronze Support
Oracle Bronze Support includes:
- -- Real Time Telephone Technical Assistance
-- 5:00 a.m. to 6:00 p.m. (Pacific Time), Monday through Friday
-- Problem solving, bug reporting, documentation clarification, technical
guidance
- -- Program updates
-- Patches and fixes
-- General maintenance releases
-- Documentation updates
- -- Support System dial-in access
- -- Quarterly Support newsletter
- -- Mail server access
-- Read/Write access to Electronic Mail over the Internet
-- Technical Assistance Requests can be opened, closed or updated
-- General Communication with Oracle Worldwide Support
-- SupportNotes(tm) -- Oracle Book based CD-ROM repository of technical
information
-- Oracle Electronic Support -- Read/Write access to Oracle's private Support
Forum on CompuServe(tm)
-- Customers will need to register with CompuServe to obtain CompuServe
access. This service will be offered in the United States only.
ORACLE SILVER SUPPORT
Oracle Silver Support includes Oracle Bronze Support plus the following:
- -- Real Time Telephone Technical Assistance
-- Toll-free 800 number
-- 24 hours a day/7 days a week
- -- SupportNotes(tm) -- Oracle Book based CD-ROM repository of technical
information
- -- Management reports -- Faxed upon request
- -- Proactive Alerts
-- Contain known problem and problem resolution information
-- Proactively faxed as applicable
ORACLE GOLD SUPPORT
Oracle Gold Support (for which a minimum fee applies) includes Oracle Silver
Support plus the following:
- -- Priority Reactive Support
- -- Account Management
-- Communication channels between Oracle and customer
-- Status reports to customer and management
-- Regular account reviews with customer
-- Conduct all proactive planning activities
-- Some first-line support
Foundation Proactive Services
-- Patch Planning
-- Version/Release Planning
-- Alerts
April 16, 1997 Page 1 of 4 Technical Support
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<PAGE> 89
SUBJECT TO CHANGE
The following Basic, Standard, and Extended Support packages are no longer
available for new support contracts.
BASIC ANNUAL SUPPORT
Basic Annual Support includes:
- -- Telephone Technical Assistance
-- 5:00 a.m. to 6:00 p.m. (Pacific Time), Monday through Friday
-- Problem solving, bug reporting, documentation clarification, technical
guidance
- -- Program updates and associated documentation
- -- Support System dial-in access
-- Log/Update/Review TARs
-- Review Bugs
-- Access the Support Bulletin Board
- -- Quarterly Support newsletter
STANDARD SUPPORT
Standard Support includes Basic Support plus the following:
- -- Telephone Technical Assistance - 24 hours a day/7 days a week
EXTENDED SUPPORT
Extended Support includes Standard Support plus the following:
- -- Toll-free 800 number
INFORMATION CUSTOMERS NEED WHEN CALLING SUPPORT
Before Support can begin work on any problem, information about the nature and
location of the problem is required. Whenever a call is placed to the hotline,
the following information should be provided:
- -- The Customer Support Identification (CSI) number or PC registration number
- -- The area code and phone number listed under the CSI number
- -- Operating system (including version) on which Oracle Programs are installed
- -- The Oracle product component and its version number the call concerns.
Support questions involve product components -- that is, constituent parts of
an Oracle product. For example, with the ORACLE kernel, Customer receives
components such as RDBMS, IMP, EXP, SQL*Loader and SQL*Forms.
- -- The relevant Program version(s)
- -- Any Program error number that appeared
- -- Brief description of the problem
- -- Severity of the problem. Oracle Worldwide Support classifies problems
according to how they impact the Customer's business. See list below for
explanation of Technical Assistance Request (TAR) Severity Levels.
TECHNICAL ASSISTANCE REQUEST (TAR) SEVERITY LEVELS
The chart below lists standard Technical Assistance Request Severity Levels.
Oracle Worldwide Customer Support responds to TARs based on Severity Level.
Severity Level
SEVERITY 1
Critical Business Impact
Customer's work, regardless of the environment or product usage, is stopped or
so severely impacted that the customer cannot reasonably continue to work.
SEVERITY 2
Severe Business Impact
Customer's work is continuing (not stopped) however there is a serious impact on
the customer's productivity and/or service levels.
SEVERITY 3
Minor Business Impact
The customer's work regardless of the environment or product usage, has minor
loss of services or resources.
April 16, 1997 Page 2 of 4 Technical Support
tecsup.doc
<PAGE> 90
SUBJECT TO CHANGE
SEVERITY 4
No Business Impact
Customer is in full working mode - there is no work being impeded at the time -
information is requested but has no impact on the operation of the products.
TARs are logged and tracked in Support's Support System. Response will be given
to the Customer by telephone and logged directly into the problem-tracking
system. The Customer may dial-in to track the progress of their TAR at any time.
Support's response may include a written response, patch tape, supplementary
documentation, a temporary means of circumventing the problem pending a new
release, or other correctional aids.
CUSTOMER CPU SUPPORT IDENTIFICATION (CSI) NUMBER
Customers shall receive a CSI Number upon purchasing Oracle Technical Support
services.
The CSI number identifies the Customer with respect to the following
information:
- -- Company Name and Address
- -- Product Set and Version
- -- Support Level and Duration
- -- Operating System
- -- Technical Contact Information
Worldwide Customer Support uses the CSI number to identify the Customer's
Support contract when a Customer calls the Support Hotline or uses dials-in
access.
TECHNICAL SUPPORT LIAISON ("TECHNICAL CONTACT")
Customers shall designate one (1) primary and two (2) backup Customer employees
("Technical Contacts") to serve as liaisons with Oracle Worldwide Customer
Support. The designated "Technical Contact" is the sole liaison between
technical support and Customers for all product support and shall be based on
the Customer site. Customer may elect to add Technical Contacts for an
additional fee.
To assure uninterrupted Technical Support service, customers must notify Client
Relations at (415) 506-1500, option 9, whenever Technical Contact
responsibilities are transferred to another individual.
UPDATES
"Update" means a subsequent release of the Program which Oracle generally makes
available for Program licenses at no additional license fee other than media and
handling charges, provided Customer has ordered Technical Support for such
licenses for the relevant time period. Update shall not include any release,
option or future product which Oracle licenses separately.
TERMS OF SUPPORT
Oracle Worldwide Customer Support's technical assistance is limited to licenses,
products, and platforms that are fully supported and to problems which are
demonstrable in the current release of the licensed program, running unaltered
on the proper hardware configuration. Current release information is posted
on-line.
Technical Support for older versions of Oracle products or for non-Oracle
products is subject to additional fees.
These Technical Support policies are Oracle's current policies and are subject
to change at Oracle's discretion.
TERMINATION
Customer may terminate technical support at any time by notifying Oracle in
writing at least thirty (30) days before the desired date of termination.
Technical Support shall be terminated upon receipt of such notice. On
termination, Oracle shall refund the unused portion of technical support fees
paid by the Customer for the licenses for the allocable period for which
technical support is terminated.
April 16, 1997 Page 3 of 4 Technical Support
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<PAGE> 91
SUBJECT TO CHANGE
PHONE NUMBERS AND ADDRESS
INFORMATION
CUSTOMER SUPPORT HOTLINE
(For Technical Support, Non-Technical Support,
and Support Sales Information)
415-506-1500
TECHNICAL SUPPORT DIAL-IN NUMBER
RTSS Dial-in 415-598-9350
TECHNICAL SUPPORT ADDRESS
Oracle Worldwide Technical Support
500 Oracle Parkway
Box 659313
Redwood Shores, CA 94065
Technical Support
tecsup.doc
April 18, 1997 Page 4 of 4
<PAGE> 92
SUBJECT TO ORACLE MANAGEMENT APPROVAL
EXHIBIT O
ORACLE PROFIT MARGIN
ORACLE RETAIL MARGIN CALCULATION
REVENUE:
[ * ]
EXPENSE:
[ * ]
[ * ] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE> 93
SUBJECT TO ORACLE MANAGEMENT APPROVAL
EXHIBIT P
QUALIFYING A LEAD
ACCOUNT NAME:
Sales Process Checklist
0 = SUSPECTED OPPORTUNITY
[ ] You have some reason or intelligence that causes you to suspect that this
account (&/or a Division therein) should need some product or service of
RETEK, or...
[ ] It is on a Targeted List in a Marketing or Sales Plan, or...
[ ] You have a Lead from Marketing, Partner, Customer, or Phone in for Info
from a Consultant (Reactive Oppty)
1 = INITIAL TARGETING AND RESEARCH
[ ] You have researched the Account and completed the basic Research needed
about the Company, its Organization, its use of IT, and Retail issues
[ ] You have completed the mandatory sections of the "Initial Discovery" Tool
and compared this to the Ideal Suspect Profile
[ ] You understand the possible reasons why this account should consider Retek,
and can define areas where Retek can be of compelling Value to this
Account, and, if possible, which of these will differentiate Retek from
competition
2 = 1ST MEETING(S) WITH HIGHEST APPROPRIATE LEVEL CUSTOMER PERSONNEL
[ ] You have called on some Customer Personnel to verify Research and identify
potential "Inside Coach or Sponsor"
[ ] From this you have established or confirmed "Retek's possible Value
Propositions against the Business Issues and Opportunities of the Customer
(based on other similar Customers) which make Compelling Business Reasons
why they should buy Retek
[ ] Although there may not be an Internal Project already tabled or in process,
you can define and elucidate clearly how the above should create compelling
reasons to talk with Retek
[ ] You can target Decision Makers who should see value in these, and why they
should meet with you
[ ] Next Steps clear & agreed with Customer + Feedback Documented back to
Customer
[ ] If Retek, COMMUNICATED WITH ORACLE ISR?
[ ] IF ORACLE, CONTACT RETEK SALESPERSON?
3 = STRATEGIC MEETING(S) WITH KEY DECISION MAKERS (CEO, COO, CIO &/OR VP
MERCHANDISING)
[ ] You have called on the likely Decision Makers for Retek's offerings
[ ] After reviewing their "Big Picture" Opportunities and Challenges compared
to Retek's Value Propositions, they agree that they have a Compelling Need
for Retek's Offering
[ ] You have Presented your Solution Overview to the likely Decision Makers for
Retek's offerings
Page: P-1
<PAGE> 94
SUBJECT TO ORACLE MANAGEMENT APPROVAL
[ ] They agree that they have a Compelling Business Need for your offerings
and agree to implement a Process to evaluate and move forward with a Retek
Proposal
[ ] Next Steps clear & agreed with Customer + Feedback Documented back to
Customer
4 = INITIALLY QUALIFIED OPPORTUNITY ["WTBD" TOOL] YES, NO, DEFERRED
[ ] This Account has a specific, compelling Business Needs for which Retek has
a Solution
[ ] You have met the Decision Makers who agree with this & see High Value in
your offerings
[ ] A Proposal is estimated to be financially & technically viable (even if
budgets are not in place)
- -------------------------------------------------------------------------------
[ ] The Decision Makers will actively support your making a Proposal
[ ] You understand the Political and Competitive situations and see no show
stoppers
[ ] You can identify and forecast the Type of Solution, rough $ and Timeframes
[ ] You have developed an Opportunity Strategy that suggests how you can win
the opportunity by positioning your Unique Selling Propositions to
differentiate Retek
[ ] The Customer has outlined their buying Process which you understand and
can meet
5 = NEEDS ANALYSIS DONE AND + (1-2 DAYS)
[ ] You have conducted a Needs Analysis using appropriate Technical Resources
with a positive conclusion
[ ] Based on the Needs Analysis you have developed an outline, optimal
Solution for which the Business Case is positive for both Customer and
Retek
[ ] You can identify your Unique Selling Propositions and hence position Retek
Solution well
[ ] You have presented/demonstrated your Outline Solution to the Decision
Makers with a positive outcome
[ ] Next Steps clear & agreed with Customer + Feedback Documented back to
Customer
6 = REASSESSMENT OF THE OPPORTUNITY
[ ] This account acknowledges their Need to buy from someone
[ ] This account has the funds budgeted
[ ] The Timeframe and decision making process is set
[ ] You are in contact with the Decision Makers who have the Authority to sign
7 = "IN DEPTH" PRESENTATION & DEMONSTRATION (2-3 DAYS)
[ ] You have presented/demonstrated your System and Solution
[ ] You have addressed the majority of the Customers' detailed requirements,
and shown how you can address the others
[ ] You have shown how Retek's Differentiators position well against the
Customer's Buying Critera, and have gained their agreement to these (or at
least a significant one of these)
[ ] You have noted and resolved all outstanding issues from the session to the
customer's satisfaction
[ ] The Customer agrees that you are the best fit and you have been selected
(subject to Reference Visits if needed)
[ ] Next Steps clear & agreed with Customer + Feedback Documented back to
Customer
8 = SERVICES -- ACCOUNT STRATEGY UNDERSTOOD AND RETEK POSITIONED
[ ] Retek Services understands expectations of client
[ ] Discussion determining account strategy has taken place with 3rd party
implementation firm/consultants.
Total investment of software license and all services discussed and
understood.
[ ] Prospect understands Retek's services offering and role of Retek and 3rd
party implementation firm/consultants.
Page: P-2
<PAGE> 95
SUBJECT TO ORACLE MANAGEMENT APPROVAL
9 - PROPOSAL LETTER SUBMITTED AND BEING CONSIDERED
[ ] You have submitted a Proposal Letter with all of the information needed by
the account to make a Decision
[ ] They are actively considering that Decision
10 - FINAL NEGOTIATION AND CONTRACT
[ ] All Customer concerns or objections are understood & handled (perhaps with
the exception of Price)
[ ] Everyone who needs to agree has agreed and approved your sale
[ ] Customer agrees to select Retek (subject only to Price)
[ ] Contract is Presented and Negotiated
- --------------------------------------------------------------------------------
[ ] Next Steps clear & agreed with Customer + Feedback Documented back
to Customer
Outcome of Sale Win - Lost - Deferred
Page: P-3
<PAGE> 96
AMENDMENT ONE
TO THE
INDUSTRY SOLUTIONS INITIATIVE MASTER AGREEMENT
BETWEEN
ORACLE CORPORATION
AND
RETEK INFORMATION SYSTEMS
This document ("Amendment One") shall serve to amend the Industry Solutions
Initiative Master Agreement between Oracle Corporation ("Oracle") and Retek
Information Systems ("ISI Member") dated September 10, 1998 (the "Agreement").
The parties agree to amend the Agreement as follows:
1. In Section 7.3.5 of the Agreement, in the second line, after the words
"Defaulting Customer's" insert the words "nonpayment or."
2. In Section 8.5 of the Master Agreement, delete the first sentence of that
Section in its entirety and replace with the following:
"All fees payable described in this Article VIII shall be due and payable
within forty-five (45) days after the last day of the month in which the
applicable fees were recognized as revenue by Oracle in accordance with
Oracle's internal revenue recognition procedures."
Other than the modification above, the Agreement shall remain in full force and
effect.
The Effective Date of this Amendment One shall be October 12, 1998.
RETEK INFORMATION SYSTEMS ORACLE CORPORATION
<TABLE>
<S> <C>
By: XXX By: XXX
------------------------------ ------------------------------
Name: Gregory A. Effertz Name: Charles P. Schneider
Title: VP, Finance and Administration Title: Senior Vice President
</TABLE>
Page: 1
<PAGE> 97
AMENDMENT TWO
TO THE
INDUSTRY SOLUTIONS INITIATIVE MASTER AGREEMENT
BETWEEN
RETEK INFORMATION SYSTEMS
AND
ORACLE CORPORATION
This document ("Amendment Two") shall serve to amend the Industry Solutions
Initiative Master Agreement between Oracle Corporation ("Oracle") and Retek
Information Systems ("ISI Member") dated September 10, 1998 (the "Agreement"),
as amended. Capitalized terms used in this Amendment Two and not otherwise
defined shall have the meanings ascribed to them in the Agreement. The parties
agree to amend the Agreement as follows:
1. The following new section 11.8 (Source Code Escrow for Customer's Benefit)
shall be added to the Agreement:
"11.8 Source Code Escrow for Customer's Benefit
During the term of this Agreement, ISI Member shall cooperate with
Oracle to ensure that complete copies of the Source Materials for
the ISI Member Programs, including Updates and code in the ISI
Member Programs which is owned by a third party, (collectively
referred to as "Escrowed Source Materials") are deposited in
escrow, under Oracle's escrow agreement, for the benefit of
Customers. Oracle may grant to Customers the right to obtain the
Escrowed Source Materials provided that (i) the Source Materials
for the Oracle Programs are deposited in the same escrow account
and (ii) the Escrowed Source Materials are subject to protections
that are equivalent to the contract provisions which Oracle has
used to protect the Source Materials for the Oracle Programs."
Other than the modification above, the Agreement shall remain in full force and
effect.
The Effective Date of this Amendment Two shall be January 29, 1999.
RETEK INFORMATION SYSTEMS ORACLE CORPORATION
<TABLE>
<S> <C>
By: XXX By:_____________________________
----------------------------------
Name: Gregory A. Effertz Name:___________________________
Title: Vice President, Title:__________________________
Finance and Administration
</TABLE>
Page 2
<PAGE> 98
SUBJECT TO ORACLE MANAGEMENT APPROVAL
ORACLE(R)
INDUSTRY SOLUTIONS INITIATIVE
TARGET MARKET ADDENDUM
- ----------------------------------------------------------------------------
This Industry Solutions Initiative Target Market Addendum (this "Addendum")
between Oracle Corporation ("Oracle") and Retek Information Systems ("ISI
Member") shall be governed by the Industry Solutions Initiative Master Agreement
dated _________________ (the "Agreement").
1. ORACLE SOLUTIONS SUITE
For purposes of this Addendum, the Oracle Solution Suite shall be the
following suite of computer programs described more fully on EXHIBIT A
(Oracle Solution Suite Description) hereto. The ISI Member Programs are
those ISI Member software programs described more fully in EXHIBIT A. Such
Oracle Solution Suite is known as the: ORACLE RETAIL SOLUTION SUITE.
2. TARGET MARKET
a. For purposes of this Addendum, the Target Market shall be as defined in
EXHIBIT B (Target Market) hereto.
b. The relationship manager for Oracle shall work with ISI Member to gain
approval for ISI Member to become a reseller of Oracle Financials and
Oracle Human Resources/Payroll applications to companies with less than
$500 million in revenue with in the SIC codes defined in Exhibit B.
3. SALES PLAN
a. SALES PLAN. The parties shall mutually create a Sales Plan and
attach it hereto within sixty (60) days of the Effective Date of this
Addendum. The Sales Plan shall include, at a minimum, the items
specified in Section 2.1.1 (Sales Plan) of the Agreement. Attached
hereto as EXHIBIT C is a preliminary version. The Sales Plan shall
address at a minimum: a geographically-based account planning process,
processes for qualifying opportunities and engaging each other's
resources on a regional basis, and ongoing definition of optimal sales
resource and staffing levels. Each party's consulting organization
shall provide ongoing reasonable assistance to the other in
cooperative marketing programs, business development and cooperative
sales calls for implementations.
b. SALES MATERIALS. Within ninety (90) days of the Effective Date this
Addendum, and on an ongoing basis thereafter, ISI Member shall use
commercially reasonable efforts to provide the following materials to
Oracle to assist in sales of the Oracle Solution Suite: (i) integrated
sales demonstration software, documentation and integrated sales
prototype systems of the Oracle Solution Suite that demonstrate the
integration of the ISI Member Program with the Oracle Solution Suite
(such integrated products to be created with the reasonable assistance
of Oracle), (ii) integrated sales force training content materials,
sales situation survey outlining qualification criteria for sales
(EXHIBIT P (Qualifying a Lead) to the Agreement), and competitive sales
materials (such materials existing or created by ISI Member in the
normal of course of business).
c. MONTHLY SALES REPORTS. Each month, Oracle and ISI Member shall each
provide a written report to the other specifying:
i. SALES PIPELINE. All pending or prospective Oracle Solution Suite
and/or ISI Member Program sales in the 90-day pipeline, including
the names of the prospective Customers, the products and the
anticipated dollar amounts of the deals.
ii. EXISTING CUSTOMER STATUS. The status of all existing Oracle
Solution Suite or Oracle-licensed ISI Member Program licensee
accounts for which the reporting party is the primary contact,
including referenceability of the accounts and status of ISI
Member Program implementations.
SUBJECT TO ORACLE MANAGEMENT APPROVAL
d. Quarterly Sales Reviews. Each Quarter (as defined below), the Oracle
and ISI Member Relationship Managers shall meet to review the sales
reports described above. In addition to that meeting, Oracle and ISI
Member shall invite each other to attend the monthly internal strategy
meetings of their respective sales organizations to discuss the status
of ongoing sales campaigns. In addition, Oracle and ISI Member shall
invite each other to attend the monthly internal meetings of their
respective consulting organizations to review the status and progress
of ongoing consulting implementations and new proposals for
implementations.
4. STATEMENT OF DIRECTION
The parties, in concert with ISI Co-Members for the applicable Oracle
Solution Suite, shall develop and maintain a Statement of Direction for
each Oracle Solution Suite that defines the product direction, general
development goals and development phases for the Oracle Solution Suite. The
parties shall mutually agree to a Statement of Direction and attach it
hereto within sixty (60) days of the Effective Date of this Addendum. The
Statement of Direction shall include, at a minimum, the items specified in
Section 2.1.2 (Statement of Direction) of the Agreement. The parties intend
to modify the Statement of Direction from time to time. Attached hereto as
EXHIBIT D is a preliminary version.
5. DEVELOPMENT
a. Development Plan. The parties shall mutually be responsible for
creating and maintaining a Development Plan to guide ongoing
development of the applicable Oracle Solution Suite. The parties shall
mutually create a Development Plan and attach it hereto as EXHIBIT E
within ninety (90) days of the Effective Date of this Addendum. In
addition to the items specified in Section 2.1.3 (Development Plan) of
the Agreement, the Development Plan shall address the following issues,
without limitation:
-- Assignment of functional domains.
-- Elimination of functional redundancy.
-- Single point of data entry for any piece of data.
-- Oracle Solution Suite release schedule.
-- Technical architecture standards, including establishment of common
data models and tables.
-- Common development procedures, including procedures for
certification testing, porting, localization and national language
support.
-- Definition of development tasks, roles and schedules for execution
of Development Plan.
-- Definition of each party's Critical Deliverables (see Sections 5.c
(Acceptance of Specifications and Critical Deliverables) and 5.d
(Failure to Deliver Specifications or Critical Deliverables) below).
-- Identification of individuals who will be working on development
related to the Oracle Solution Suite. The individuals assigned to
such work as of the Effective Date of the Agreement are John Goedert
and Jeff Goke.
-- Milestones for managing the development process.
-- Oracle retail development obligation to design interfaces and other
key product specifications as input to the ISI Co-Members which the
ISI Co-Members are expected to deliver (with people to install at
Oracle) for QA before general release. Initial interfaces include
integration points with Oracle Financials and Oracle Energy
Downstream.
The Development Plan shall not become effective until it is approved in
writing by Oracle, ISI Member and all ISI Co-Members. The Development
Plan may be modified from time to time in writing by Agreement of the
parties subject to Section 2.5 (Dispute Resolution) of the Agreement.
b. Development Managers. Each party shall designate a development manager
who shall serve as the primary point of contact between the parties
concerning development activities. The parties' initial development
managers are Marian Szefler, Vice President for Oracle and John Goedert
for ISI Member. Duties of the development managers include the
following:
-- Determine designs and technology and architecture standards for the
integration of the ISI Members Programs with the Oracle Programs
-- Resolve functional and modular redundancies
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- Accept or reject Critical Deliverables as provided below
- Generate and review proposals for changes in the functionality and
technology of the ISI Member Programs
- Prioritize bugs for resolution
- Resolve issues and disputes or escalate them to appropriate levels
for dispute resolution in accordance with the terms of Section 2.5
of the Agreement
- Provide regular development status reports to the other party's
Development Manager
- Oversee appropriate staffing to meet applicable party's development
requirements based on development plan
c. Acceptance of Critical Deliverables
i. Critical Deliverables. ISI Member shall submit to Oracle each
Critical Deliverable that the ISI Member is obligated to
deliver under the Development Plan by the delivery date
specified in the Development Plan for such Critical Deliverable.
The Development Plan shall set forth a specified acceptance test
("Acceptance Test") for each Critical Deliverable. If any
Critical Deliverable does not pass its respective Acceptance
Test in any material respect, Oracle shall so notify ISI Member
in writing within ten (10) business days after submission of
such Critical Deliverable (or such other time period as agreed
in the Development Plan), describing in detail the errors which
need to be corrected. Within ten (10) business days after such
notice, ISI Member shall deliver to Oracle a revised version of
the Critical Deliverable. Oracle shall have ten (10) business
days to accept or reject the revised Critical Deliverable in
writing as set forth above.
ii. Default Acceptance: Disputes. Notwithstanding the foregoing, if
Oracle fails to reject any Critical Deliverable therefor within
the acceptance period and in the manner described above, such
Critical Deliverable shall be deemed accepted at the end of the
ten (10) business-day acceptance period. Any disagreement
arising under this Section 5 shall be referred to dispute
resolution under Section 2.5 (Dispute Resolution) of the
Agreement.
d. Failure to Deliver Critical Deliverables.
In the event any of the following occurs, Oracle shall have the
applicable remedy(ies) described in "Remedies" below:
i. Failure to Deliver Critical Deliverables. ISI Member fails to
submit to Oracle any Critical Deliverable by the delivery date
specified in the Development Plan for such Critical
Deliverables, and within forty-five (45) calendar days after the
missed delivery date fails to submit to Oracle and begin to
execute a plan to complete such Critical Deliverable; or
ii. Failure to Cure Deficiencies Within 45 Days. Oracle rejects ISI
Member's Critical Deliverable within the acceptance period and
in the manner described in Section 5.c.i. (Critical
Deliverables) above, and within forty-five (45) days after such
rejection ISI Member has not delivered to Oracle and begun to
execute a plan to cure the deficiencies specified by Oracle; or
iii. Nonacceptance After 180 Days. Oracle does not accept or is not
deemed to have accepted ISI Member's Critical Deliverable in
accordance with Subsection 5.c above within one hundred eighty
(180) calendar days after the delivery date specified in the
Development Plan for such Critical Deliverable.
iv. Remedies.
A. Termination. If any of the events specified in Section
5.d.i., ii., or iii., above occurs, then Oracle may
immediately terminate the Agreement for breach with no right
to cure, notwithstanding anything to the contrary in Section
9.2.1 (Termination for Cause) of the Agreement, subject,
however, to Section 2.5 (Dispute Resolution) of the
Agreement.
B. Assumption of ISI Member Development Obligation. If any of
the events specified in Sections 5.d.i., ii., or iii., above
occurs, Oracle may, as an alternative to or in addition to
terminating under Section 5.d.iv.A (Termination) above,
complete the applicable ISI Member specifications and/or
Critical Deliverable.
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All right, title and interest in and to the product of such
development shall be owned by ISI Member, and such product
shall be deemed to be an ISI Member Program or component
thereof for purposes of the Agreement. In the event Oracle
exercises this right, Oracle shall have the right to recover
its investment in such development as follows: Oracle shall
retain (i) [ * ] of all Sublicense Fees payable by
Oracle to ISI Member under Section 8.1 (Sublicense Fees) of
the Agreement; and (ii) [ * ] of all Technical Support
Fees related to the ISI Member Program(s) that embodied or
attached to the applicable Critical Deliverable payable by
Oracle to ISI Member under Section 8.2 (Technical Support
Fees) of the Agreement, all of which amounts Oracle shall
retain until those amounts retained by Oracle cumulatively
total an amount equal to the total cost incurred by Oracle
(including services, out-of-pocket expenses and materials).
in completing ISI Member Critical Deliverable plus an
additional [ * ] of such cost [ * ]).
C. Sharing of Compensation Payable to Customers. If the
occurrence of 5.d.i., ii., or iii. above causes Oracle to
breach a contractual delivery obligation to a Customer, and
Oracle compensates the Customer as a result thereof, ISI
Member shall bear such portion of that compensation that
the ISI Member and Oracle agree in writing is proportional
to the degree of fault, if any, on the part of ISI Member,
subject to Section 10.3 (Limitation of Liability) of the
Agreement. The parties may agree on an equitable means of
Oracle's recovery of such compensation against ISI Member
(for example, direct payment or a credit against future
sublicense and/or Technical Support Fees owed by Oracle to
ISI Member).
D. Remedies Cumulative and Nonexclusive. The remedies set
forth in this Section shall be cumulative rather than
alternative. In addition, such remedies shall be in
addition to any other legal or equitable remedies available
to Oracle.
e. Development Funds. ISI Member agrees to provide development funds for
its development activities under the Agreement and this Target Market
Addendum. ISI Member agrees to contribute a minimum of the amount
specified in the Development Plan for development activities to be
conducted for the period one year following the Effective Date of the
Agreement. The parties shall mutually agree upon the development funds
to be provided for subsequent years of the Agreement and this Target
Market Addendum. ISI Member shall be responsible for administering its
own development funds. Within 30 days of the end of each Quarter
during the Term of the Agreement, ISI Member shall generate a report
showing the development funds expended for its development activities
during such period. For purposes of the foregoing report, "Quarters"
shall be deemed to commence on the first day of June, September,
December and March of each year.
f. Solution Development. Specific ISI Member product requirements which
shall be included in the Development Plan shall be as follows:
i. ISI Member agrees to work in good faith with Oracle to mutually
examine and determine whether [ * ]. ISI Member agrees to
work in good faith with Oracle to mutually examine and determine
whether [ * ].
ii. ISI Member will develop grocery functionality in accordance
with EXHIBIT F attached hereto.
iii. Oracle Energy Requirements
A. Oracle Energy Downstream (OED) Management Information module
will need to receive summary category data from ISI Member
Program modules to provide both fuels, summary merchandise
and profitability analysis capabilities.
[ * ] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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Drill-down (and drill-up) capabilities (from a users
perspective) may also be required from the Oracle Energy
Downstream Management Information to ISI Member Programs.
The specific development requirements, work plans, timing
and resource requirements to provide data warehouse
integration will be developed in an equal and joint effort
between ISI Member and Oracle before March 31, 1999. This
integration plan will define an initial integration offering
that will be ready for customers within six months after
completion of the development requirements described in the
preceding sentence. Data warehouse integration planning and
development will be led by Oracle with appropriate ISI
Member support and resources (not to exceed Oracle's effort
level) to complete agreed upon work scope. ISI Member and
Oracle will maintain data warehouse functionality as part of
their respective product offerings.
B. Additional integration between Oracle Energy and ISI Member
products will be jointly scoped with equal effort by ISI
Member and Oracle to determine customer and development
requirements, work plans, timing and resource requirements
within 90 days of a signed agreement. Potential integration
areas include (but are not limited to) price books, demand
forecasting, customer loyalty, and franchisee functionality.
C. Specific grocery store and convenience-gasoline store
market issues will be jointly reviewed by Oracle and ISI
Member as part of the annual planning process to ensure a
differentiated, market leading solution is maintained in
both the grocery and convenience-gasoline markets.
IV. ISI Member will support the latest release of any Oracle
product embedded in their application within 180 days of a
given release becoming generally available, by upgrading to
the latest version of the Oracle RDBMS and tools where
reasonable.
6. TRAINING PLAN
The parties shall mutually agree to a Training Plan and attach it hereto
within sixty (60) days of the Effective Date of this Addendum as
EXHIBIT G. At a minimum the Training Plan shall address the following:
a. The parties shall cooperate in developing a curriculum for training
each party's development, sales, consulting, technical support, and
education personnel on how to position and sell the Oracle Solution
Suite as well as on the relevant products of the other party.
b. ISI Member shall, according to this TMA or as otherwise provided in
the Training Plan (or subsequent versions thereof):
i. Provide and develop (i) training programs for the ISI Member
Programs and for the integration of the ISI Member Programs with
the other Oracle Solution Suite components, and provide copies
of such programs to Oracle and (ii) internal training curriculum
content for the ISI Member Programs using a commonly used
automated authoring tool.
ii. Adopt reasonable quality standards for such training programs.
iii. Provide a reasonable amount of training for ISI Member's product
line to Oracle sales, marketing, development, education and
consulting personnel at no charge for six (6) months from the
Effective Date; provided, however, that this shall not apply to
education and consulting "bootcamps"/intensive training.
Thereafter, and for other Oracle personnel Oracle may purchase
such training services from ISI Member at a discount of thirty
percent (30%) off ISI Member's rates for such services as
attached hereto as EXHIBIT H, as such Exhibit may be amended by
ISI Member from time to time, but in no event more than once in
a twelve month period.
iv. Provide technical support and consulting services training on
the ISI Member Programs and Updates (excluding patches and bug
fixes) of the ISI Member Programs. ISI Member shall use
commercially reasonable efforts to make such support and
training available to Oracle sixty (60) days prior to the
release of any Update, but in no case shall
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such support and training be made available to Oracle later
than the time that such support and training become available
to ISI Member employees.
v. Provide Oracle a discount of thirty percent (30%) off ISI
Member's list rates for training services (as attached hereto as
Exhibit H) when Oracle enters into an engagement with a Customer
for training on the Oracle Solution Suite when Oracle is acting
as a prime contractor.
c. ISI Member and Oracle agree to work together to create integrated
training materials within sixty (60) days of the Effective Date for
the purposes of training Customers in the use of the ISI Member
Programs and versions thereof integrated in the Oracle Solution Suite.
7. STAFFING
Oracle and ISI Member shall each provide staffing to implement the
Agreement and this Target Market Addendum. ISI Member's individuals
assigned to such work as of the Effective Date of the Agreement are: Peter
Baskin, David Bagley, David Tidmarsh, Bob Tuttle, Gordon Masson, John
Goedert, and Jeff Goke. ISI Member shall bear its own expenses for such
staffing and any increases in staffing. ISI Member will dedicate sales
people to the retail market in the following roles: ten (10) application
sales consultants and an appropriate management structure.
8. MARKETING
The parties shall mutually agree to a Marketing Plan and attach it hereto
within sixty (60) days of the Effective Date of this Addendum. Attached
hereto as EXHIBIT I is a preliminary version.
a. At a minimum the Marketing Plan shall include the following:
-- ISI Member shall provide existing and new content for Oracle's
development of sales collateral for the Oracle Solution Suite.
-- ISI Member shall provide content for Oracle's development of a
sales tool kit for the Oracle Solution Suite.
-- ISI Member shall provide product marketing materials for the ISI
Member Programs.
-- Oracle shall have primary responsibility for executing seminars,
trade shows, public relations and communications, advertising,
direct mail, sales collateral creation and sales tool kit creation
for the Oracle Solution Suite in accordance with the provisions of
Section 8.b below.
-- The dollar amounts allocated to the Marketing Plan shall be subject
to mutual agreement, subject to Section 8.b. below.
Either party may spend a larger amount on marketing than the amount
designated in the Marketing Plan, provided that the content of all ISI
Member marketing materials for the Oracle Solution Suite shall be
subject to prior approval by Oracle. Except as mutually agreed and
budgeted for in the Marketing Plan, neither party shall have any
obligation to market the other's products or any product containing
the other's products, and each party shall have full freedom and
flexibility in the design and implementation of its marketing efforts,
and may discontinue any marketing efforts at any time. Subject to the
provisions of Section 7.6 of the Agreement, Oracle agrees to attribute
the ISI Member Programs to ISI Member, using ISI Member's logo or
similar credit (e.g. "Retek enabled"), in all of the advertising or
marketing materials for which ISI Member is required to contribute
financially pursuant to the Marketing Plan and in accordance with
Section 8.b.
b. Marketing Funds. ISI Member agrees to provide marketing funds for its
marketing activities under the Agreement and this Target Market
Addendum. In general, Oracle and ISI Member intend to jointly fund all
marketing activities [ * ] except funding for joint advertising,
which will be split Oracle [ * ] and ISI Member [ * ]. Each
party agrees to expend (either directly or through contributions for
joint marketing and advertising) [ * ] to effect the parties'
marketing and advertising activities in accordance with the Marketing
Plan in the one year period following the effective date of the
Marketing Plan. The parties shall mutually agree upon the marketing
funds to be provided for subsequent years of the Agreement and this
Target Market Addendum. The parties will jointly assess the
effectiveness of the marketing effort and adjust programs and funding
accordingly. ISI Member shall be responsible for administering its own
[ * ] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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marketing funds. Within 30 days of the end of each Quarter (as defined
below) during the Term of the Agreement, each of Oracle and ISI Member
shall generate a report showing the marketing funds expended for its
marketing activities during such period. For purposes of the foregoing
report, "Quarters" shall be deemed to commence on the first day of
June, September, December and March of each year.
9. LOCALIZATION AND NATIONAL LANGUAGE SUPPORT
a. National Language Support is defined as translation of error messages,
database strings, help text, and screens.
i. Initial release language of the ISI Member programs shall be in
US/English language.
ii. within 90 days of initial release of the ISI Member Programs in
US/English, ISI Member will release at its own expense the ISI
Member Programs in European French, Latin American Spanish, and
Canadian French.
iii. Within 90 days of the Effective Date of the Agreement, ISI Member
will develop at its own expense Sales Demo in German.
iv. Upon license to the initial customer of the ISI Member Program(s)
in each of Germany and Spain, ISI Member will at its own expense
create German and European-Spanish versions of the ISI Member
Program(s).
v. For all other languages, upon request, ISI member will develop
translated version(s) of the ISI Member Program(s) with 90 days
lead-time; translation funding to be determined on a
case-by-case basis.
vi. User documentation will be created by ISI Member at ISI Member's
expense at Customer request for the following languages:
European French, Latin American Spanish and German. ISI Member
will create at its own expense under documentation for other
languages for countries the ISI Member views as representing
significant business opportunity for ISI Member. For all other
translations of user documentation, funding will be determined
on a case by case basis.
b. Localization
i. ISI Member will at its own expense comply with all legal
localization requirements within 90 days of notification or
self-discovery for the following countries: Australia, U.S.,
Canada, Mexico, and all countries in the European Union. ISI
member will at its own expense comply with all legal
localization requirements as requested by or for a Customer.
ii. It is ISI Member's intention to meet localization requirements for
standard retailer business practices.
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10. PORTING. Each party shall support its components of the Oracle Solution
Suite on, at a minimum, the platforms listed in the Development Plan. In
addition, ISI Member shall port the ISI Member Programs to the following
platforms within six (6) months after ISI Member first releases the
applicable ISI Member Program on any other platform: (a) DEC/Alpha, (b)
IBM, (c) Sun, and (d) HP; provided, however, that with respect to porting
of ISI Member's Demand Forecasting product to DEC/Alpha, ISI Member shall
only have the obligation to perform such port at such time that such
product utilizes the Oracle database RDBMS product.
The Effective Date of this Addendum is September 10, 1998.
<TABLE>
<S> <C>
RETEK INFORMATION SYSTEMS ORACLE CORPORATION
By: XXXXX By: XXXXX
---------------------- ----------------------
Name: John Buchanan Name: Raymond Lane
Title: President Title: President
</TABLE>
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EXHIBIT LIST
EXHIBIT A Oracle Solution Suite(s) Description
EXHIBIT B Target Market
EXHIBIT C Sales Plan
EXHIBIT D Statement of Direction
EXHIBIT E Development Plan
EXHIBIT F ISI Member Grocery Functionality
EXHIBIT G Training Plan
EXHIBIT H ISI Member Training Rates
EXHIBIT I Marketing Plan
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EXHIBIT A
ORACLE SOLUTION SUITE(S) DESCRIPTION
ORACLE RETAIL SOLUTION SUITE*
The Oracle Retail Solution Suite is a suite of application programs providing
enterprise-wide business system functionality for the retail industry. The
Oracle Retail Solution Suite will consist of the following components:
RETEK
Retek Data Warehouse
Active Intelligence
Retek Demand Forecasting
Merchandise Management
Trade Management
Warehouse Management
Retek Technology Based Training
ORACLE
Oracle Financial Applications
Oracle Human Resources
Oracle Payroll
Oracle Sales Analyzer & Call Center
Oracle Projects Connect
Oracle Energy Downstream
Oracle Internet Commerce Server
* Additional Oracle and Retek products may be added to this Exhibit A upon
written agreement of the parties.
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EXHIBIT B
TARGET MARKET
KEY MARKET OPPORTUNITIES FOR THE ORACLE RETAIL SOLUTION SUITE:
- - Grocery/Drug/Food
- - Mass merchandisers and Department Stores
- - Specialty Hardlines
- - Convenience Stores/Gasoline Stores
- - Fashion
TARGET BUSINESS SIZE FOR THE ORACLE RETAIL SOLUTION SUITS:
Companies with >500 Million in revenue
SIC CODES INCLUDED IN THE TARGET MARKET:
56XX Apparel
5948 Luggage and Leather Stores
3942/3944 Toy Stores
Recreation Stores
Jewelry Stores
Book Stores
57XX/52XX Retail Home
Electronics
Appliances
Garden
5941-5947/5949/5995 Stationary Stores
Gift Stores
Sporting Goods Stores
Optical Goods Stores
5912/5921/5992/5994/54XX Food and Drug Stores
53XX/5932 Retail General Merchandise
Department Stores
5531-5541 Auto Stores
Tire Stores
Home Supply Stores
Convenience with Gasoline
Miscellaneous Retail Stores
5061 Catalog & Mail Order
5012-5199 Distributors and Wholesalers
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PRODUCT STRATEGY WHITE PAPER
VERSION 1.1G
GROCERY AND CONVENIENCE STORE INDUSTRIES
AUGUST 1998
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Grocery & Convenience Store white paper
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INTRODUCTION
The grocery and convenience store industry is headed for continuous, overlapping
change for the foreseeable future.
Quite what form that change will take, or exactly how it will impact our
Industry only time will tell. However, we do know today that change, and our
ability to shape or react to it will be one of the key differentiators that will
sort tomorrow's winners from the losers.
Retek is particularly focused on how the coming changes will impact requirements
for grocery and convenience store business applications. Our ability to identify
the most important trends and stay ahead of the competition will determine the
future success of Retek and our customers.
There are a number of observable trends in today's marketplace that offer anchor
points for setting product strategy and development plans. This white paper
summarizes our analysis:
- - Section I provides an overview of our conclusions
- - Section II addresses the longer term trends, and their implications from
a business applications perspective
- - Section III details our current grocery solution and the near term
development plans that result from our analysis.
The material expressed below is our opinion, based on our experiences, study and
observation as well as considerable debate with our customers and partners. We
would like to thank all those who have contributed to this analysis, in
particular Andersen Consulting's SMART STORE centers in Chicago and Windsor UK.
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SECTION I - OVERVIEW
We have four key conclusions from our analysis of industry trends:
- - Winning grocery solutions will include integrated transaction, decision
support and business intelligence applications, with competitive advantage
ultimately coming from applications that add business intelligence.
- - Customer understanding and interaction management will emerge as business
critical applications, with technical leadership providing a highly
defensible advantage.
- - The growth in network bandwidth and processing power will not slow,
additional scalability will support increasing business focus on customer
level data and its value across a broad range of business decisions.
- - The web will drive an information-based, collaborative approach to supplier
management. This will reshape many of today's business practices,
especially in the supply chain and new product development arenas.
We believe Retek's current position gives our grocery and convenience store
customers a critical advantage as we address these issues:
- - The Predictive, neural network based technology that Retek and our HNC
parent have patented will become ever more strategic. It already supports a
number of Business Intelligence applications such as the Replenishment
Optimizer and the Integrated Causal Forecasting, this number will increase
significantly as the focus shifts to exploiting the value of the complete
Retek transaction enterprise.
- - The customer centric developments to version 3.0 of the Retek Data
Warehouse form a strong platform for sharing customer understanding across
the retail organization. The profiling engine that drives the customer
understanding will prove to be a highly valuable weapon for our customers
as the focus shifts to the new rules of customer management.
- - Retek's close relationship with Oracle and 11 years of experience in
designing our applications to optimize each successive version of their
database gives us deep Oracle experience to exploit. This has consistently
allowed our customers to handle volumes of data that are orders of
magnitude ahead of their competition.
- - Retek modules take advantage of Oracle's network or thin client capability.
This gives our customers the option to deploy over the web and is driving
our store solution to remove the need for store based data and servers.
This is a critical advantage for our convenience and gas store customers,
changing the economics drastically in their favor.
- - Retek's experience in developing our fashion oriented Collaborative Supply
Chain Manager application positions us well to address collaborative
developments in grocery. In addition we have developed a tight partnership
with WebTrak, a development organization specializing in collaborative
systems.
The challenge is for Retek to retain this leadership position. To do this we
must keep moving at the same rapid pace, we must continue to bridge the gap
between technical opportunity and grocery business requirement and to ensure
this we must keep listening to our customers. The opportunity is there for Retek
and our customers.
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SECTION II - INDUSTRY TRENDS AND IMPLICATIONS FOR BUSINESS APPLICATIONS
[Flow Chart]
Consumer Demand
Competitive Grocery Changing
Environment business Technology
applications
Supplier
Relations
1. THE COMPETITIVE ENVIRONMENT WILL CONTINUE TO TIGHTEN
- - SATURATION OF THE MAJOR DEVELOPED MARKETS IS DRIVING GLOBALIZATION as
retail organizations seek to find opportunity overseas, seeking to exploit
national or locally driven expertise into different markets. Results have
been mixed to date, and the pace and effect of this trend are unclear.
- However, we expect to see the development of international best
practice, in many cases this will have business applications folded
into the concept. The supply chain, in particular, will be supported by
integrated applications that drive extreme operational efficiency.
- Local "features" such as US forward buying and European complex deal
structures and rebates will come under pressure as sources of
competitive advantage.
- Markets with less developed infrastructure will need to be supported,
telecommunications developments such as Iridium will have a major
impact on the technical implications of moving into new markets such as
China.
- - TRADITIONAL FORMATS WILL CONTINUE TO BLUR, non grocery retailers such as
the Wal-Mart and other mass merchants will continue to move into the market
and take share while grocery formats will continue to branch out into new
retail territory (e.g. Fuel, Staple clothing , books) and even new
industries (banking, investments, insurance, are all currently sold by
leading brand grocers).
- This will drive broader functional requirements at an operational level
to support all categories of product and service from one core system.
- Food service systems will need to be integrated into the core as more
prepared food continues to take a greater share of the consumer's
stomach.
- It will also drive the cross-fertilization of business practices across
product types, leading to the adoption of new tools in the grocery
business, and the transfer of grocery tools and operational excellence
to other retail segments.
- In turn this will re-enforce the increasing difficulty in forging
competitive advantage through operational or even decision support
systems, and the increased focus on business intelligence systems as a
source of competitive advantage.
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- These business intelligence systems will fully support Category
Management, embodying the principles of ECR, but will also move into
new ground, addressing customer interactions as well as organizational
alignment and learning.
- - SALES OF GROCERIES OVER THE INTERNET WILL INCREASE, estimates of the pace
of take up vary enormously and have proved wildly inaccurate to date.
However, it is clear that this channel will take a share of the existing
market and that growth will divert business from today's store-based
channel.
- This will put additional strains on the cost structure that can be
supported in the stores, we believe this will re-enforce the demand for
network based store systems that avoid many of the hardware and support
costs that are necessary for distributed store systems.
- This growth will also drive many grocers to recognize the Internet as a
distribution channel they cannot afford to ignore. Cost structures will
again dictate the necessity of using common backbone merchandising and
logistics systems to support both traditional store sales and Internet
sales.
- As this channel becomes more significant, an ability to support 24hr
operations will become a standard requirement for merchandising and
logistics systems. New expectations and requirements for round the
clock, multi-channel customer service will drive the development of
advanced customer support systems.
IMPLICATIONS FOR GROCERY SYSTEMS:
- - International best practice and international specialization will need to be
supported
- - International infrastructure developments such as Iridium will have
significant impact on the costs of supporting operations in developing
economies
- - All product types will need to be supported in one solution, regardless of
traditional segmentation
- - Adoption/development of non-traditional grocery tools and working practices
will broaden the scope of the total solution
- - It will be a requirement to be world class in all areas of operations and
decision support, highest value will be placed on business intelligence
systems that allow for the creation and implementation of competitive
advantage
- - Web-based store systems offer key cost advantage
- - Common backbone and decision support for store and web based business
- - Ability to support 24 hour operations will be a requirement
- - Customer service systems will need to span multiple channels
- --------------------------------------------------------------------------------
OPERATIONAL SYSTEMS WILL TAKE ON AN INTERNATIONAL, INTER FORMAT PERSPECTIVE,
COMPETITIVE ADVANTAGE WILL COME FROM INTEGRATED BUSINESS INTELLIGENCE SYSTEMS.
- --------------------------------------------------------------------------------
[flow chart]
Business
Intelligence
Transaction Decision
Support
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2. CONSUMER DEMAND WILL GROW EVER MORE SPECIALIZED AND SOPHISTICATED.
- - CUSTOMERS WILL EXPLOIT THE COMPETITIVE SITUATION described above,
demonstrating that real power is in their hands not retailers or
manufacturers.
- This will result in increasing focus on customer understanding, insight
into customer behavior and value will become a real competitive weapon.
- Customer "loyalty" will drive multiple marketing programs and a shift
of emphasis to the marketing groups in many retailers.
- Over time we expect to see a shift away from buying "loyalty" with
points and card programs, to a longer term approach based around
embedding customer understanding into product selection and focused
customer service.
- This will drive for increased access to customer and
micro-merchandising systems at all points of customer contact,
particularly the store.
- At the same time, customer power to cherry pick and resist price hikes
will re-enforce the need for systems of extreme operational efficiency.
- - CUSTOMERS' PERCEPTION OF VALUE WILL CONTINUE TO EVOLVE as growing
congestion on the roads drives many to think of "total cost" of shopping
including time and expense of travel. In some economies this equation and
growing green legislation is already driving a move back to smaller in town
formats.
- This trend will lead to renewed focus on convenience stores and
gas/service stations as access points into local markets. This will, in
turn, drive requirements for web based store solutions with access to
sophisticated micro-merchandising capabilities.
- "Total cost" thinking may drive multi-channel solutions - linking
internet based ordering with low cost customer pick up points at
convenience stores and gas stations or linking store customer service
with internet based home delivery services.
- These pressures will drive much greater focus on managing the
customers' overall shopping experience, tools will be required to
support qualitative metrics of customer reaction.
- - THE BROAD CUSTOMER BASE WILL CONTINUE TO POLARIZE - differentiating between
the "time rich, but money poor" and the "time poor, but money rich".
- Ability to segment, identify and target different customer groups in
different locations will become a key profit lever for leading grocers.
Combined micro-merchandising and customer segmentation systems will
differentiate the best.
- Quality management will need to be an integral part of the overall
system, as different quality strategies are applied to different
markets.
IMPLICATIONS FOR GROCERY SYSTEMS:
- - The understanding of customers, both individuals and groups, and the
ability to predict behavior will be a core competitive tool.
- - Micro-merchandising applications will grow more sophisticated, linking into
customer profiling applications. Stores will need access to these
applications.
- - Customer service applications will become pervasive - in the store, over
the phone, on the net. All will be integrated across customer touch points.
- - Quality management requirements will become more complex as sophisticated
customer interaction strategies are implemented.
- - Applications will be required to support the measurement and subsequent
management of the customers' shopping experience.
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- --------------------------------------------------------------------------------
COMMON CUSTOMER UNDERSTANDING AND INTERACTION MANAGEMENT WILL EMERGE AS KEY
APPLICATION REQUIREMENTS ACROSS MULTIPLE CHANNELS
- --------------------------------------------------------------------------------
[Flow chart]
Point of Store
interaction POS Phone Mail Internet kiosk iTV
Common customer management -Inbound & Outbound
Customer
mgmt layer Common Common Common
customer product event
profile profile profile
Backbone
applications (Merchandising) Logistics
3. THE PACE OF TECHNOLOGICAL CHANGE WILL NOT SLOW
- - THE MOVE OFF MAINFRAMES TO CLIENT/SERVER WILL EVOLVE INTO A MOVE TO THIN
CLIENT COMPUTING, as the network becomes ever more powerful and ubiquitous
and processing power continues to follow Moore's law, doubling every 18
months.
- Web browsers will become the de facto standard interface for any remote
access to applications.
- Developments in parallel processing and clustering technology will
drive vastly increased scalability and processing power
- As extra power becomes available it will enable the drive towards the
customer, handling ever larger volumes that will never quite catch up
with inventive marketing departments.
- Consolidation and standardization will continue, particularly at the
platform and data base end of the marketplace, the risks of not
following the market leader will multiply.
- The next generation of data management and network computing will
continue to offer an incremental step change of opportunity, staying
close to that will be of huge value.
- - THE NETWORK WILL TRANSFORM THE ECONOMICS OF TECHNOLOGICAL COMPETITION.
- While the cost of application operations will remain relatively
constant, remote cost of access will fall dramatically.
- This will alter the technological balance of power away from the large
retailer with the significant in house IS group towards the smaller
operation who "signs up" for access to industry or market level
solutions.
- The competitive landscape will reshape rapidly, as new players with
little systems support today, seize opportunities to leapfrog
traditional grocers constrained by legacy applications and internal IS
skills
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- - THE USER INTERFACE WILL MOVE FORWARD INTO A NEW METAPHOR, as business
applications respond to charges of under-delivery.
- Visual process flows will drive business applications, taking advantage
of the web to link multiple applications and partners into a business
process driven workbench.
- - PACKAGED APPLICATIONS WILL SWEEP THE GROCERY MARKET as is happening in
other retail segments. The competitive situation will force closer focus on
return on investment and the cost of keeping current will continue to
increase for custom application development and support. Combined, these
forces will result in most grocery retailers making the transition to
packaged solutions at the next major investment point in their development
schedule.
IMPLICATIONS FOR GROCERY APPLICATIONS:
- - The network will be everywhere, web compatible applications are be an
obvious requirement
- - Database independence will be costly and slow access to latest
developments, we believe Oracle will dominate
- - Increased scalability will drive advanced modeling applications
- - The network architecture and cost structure will encourage a new model of
application deployment and usage
- - Visual process flows will redefine the user interface
- --------------------------------------------------------------------------------
EXPLODING NETWORK AND PROCESSING CAPABILITIES WILL ENABLE NEW OPPORTUNITIES FOR
BUSINESS APPLICATIONS, THOSE CLOSEST TO THE DATA MANAGEMENT ADVANCES WILL TAKE
FIRST ADVANTAGE
- --------------------------------------------------------------------------------
Applications are in transition..
From Mainframe to Client/server to Network
From Custom to Package to Enterprise
From Data processing to Analysis to Predictive
From Passive to Reactive to Proactive
80's 90's 00's
- --------------------------------------------------------------------------------
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4. SUPPLIER MANAGEMENT WILL BE REDEFINED
- - SUPPLIER COLLABORATION WILL DEVELOP AS A MAJOR FOCUS FOR THE INDUSTRY.
Scope will broaden to include: forecasting; replenishment; in store
merchandising; new product development (for both branded and private
label); packaging and reverse (or green) logistics.
- Forecasting applications will become key communication and cost control
tools for both grocer and manufacturer as detailed sales and promotion
forecasts drive both production and replenishment.
- Visual merchandising tools will be integrated into collaborative
Category Management solutions, driving a new requirement into the space
management arena.
- VMI will continue to play a part in the replenishment of specialist
product types or where the retailer chooses not to focus on the Supply
Chain as a core competency. In general this will be unusual.
- Product development lifecycles will be shortened through the
introduction of collaborative development tools. Most attention will
focus on potential impact on the success of new product introductions,
where collaborative sharing of customer understanding and targeting
data offers significant value.
- - DIRECT PRODUCT COSTING WILL BECOME AN OPERATIONAL REQUIREMENT. Increased
sharing of information will drive the adoption of direct product costing as
a core approach as collaboration moves beyond the initial gains in
inventory to address broader supply chain and promotional opportunities.
- Fact-based negotiation will put a premium on full understanding of cost
structures across the whole supply chain. The better the access to this
information, the greater the edge for the buyer.
- - THE WEB WILL CREATE NEW RULES OF BUSINESS, many existing work practices
will disappear, to be replaced by new structures and organizations.
- Manufacturers will seek to sell directly to the consumer over the web.
The battle for the consumer relationship will intensify.
- Branding and customer understanding will be key, further re-enforcing
the drive towards customer focused applications highlighted earlier.
- Business to business commerce and internal procurement will become web
based
- We may see the emergence of Industry Intranets and reference data
points such as the ANA service in the Auto Industry
IMPLICATIONS FOR GROCERY APPLICATIONS:
- - Sophisticated sales and promotion forecasting applications will become
key
- - We should expect the next generation of visual merchandising tools to
be web-based to allow for a collaborative approach
- - VMI will become part of a broader collaborative solution
- - Applications to support new product development will get integrated
into enterprise solutions
- - Supply chain and purchasing modules will need to support direct product
costing.
- --------------------------------------------------------------------------------
COLLABORATION WILL OFFER REAL ADVANTAGES, EVEN MORE SO IF YOU UNDERSTAND YOUR
COMPLETE COST STRUCTURE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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SECTION III - THE RETEK GROCERY SOLUTION
1. TRANSACTION SYSTEMS
[Flow Chart]
PLAN BUY MOVE SELL PAY
Demand Product Warehouse Wireless Store Financials
Forecasting Maintenance Management Operations
Range Purchasing Virtual Store Human
Management Management Workbench Resource
Space Price & Trade Fuels Invoice
Management Promotions Management Management Matching
Product Inventory Web Store
Development Management
Collaborative Supply Chain Web Based Sales
Management Event Mgmt Audit
Promotional Direct Product
Planning Costing Mgmt
THE RETEK GROCERY SOLUTION CURRENTLY SUPPORTS:
- - DEMAND FORECASTING - Statistical and causal forecasting solution employing
state of art modeling techniques to produce extremely accurate forecasts
with minimal human intervention.
- - SPACE MANAGEMENT - MarketMax space management solution with support from
total store planning down to plannograms.
- - PRODUCT DEVELOPMENT - Buyer and supplier teams share a common web database
to conceptualize, develop, and finalize new products.
- - PRODUCT MAINTENANCE - Full core merchandizing set-up and maintenance
including products, suppliers and locations.
- - PRICE AND PROMOTIONS MANAGEMENT - Price management supports differential
pricing across stores by item. Advanced time based promotion management
includes support for threshold, mix `n' match, and loyalty card discounts.
- - INVENTORY MANAGEMENT - Store and warehouse replenishment (Computer Assisted
Ordering), features include sophisticated dynamic and time supply methods,
cross dock, flow-through, direct store deliveries, substitute products, and
closed loop inventory tracking functionality.
- - DIRECT PRODUCT COST MANAGEMENT - Understand the key direct product costs
associated with each product and category and use this information to
optimize category financial performance.
- - WAREHOUSE MANAGEMENT - supports entire distribution management needs, from
the single site to multiple facility management.
- - FINANCIALS - comprehensive financial management solution the dramatically
enhances financial controls, data collection, information access and
financial reporting.
- - H/R - proactive management tool that controls costs while developing and
supporting an effective workforce.
- --------------------------------------------------------------------------------
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ENTERPRISE 3.0 (DEC 31 1998) IS BEING ENHANCED TO SUPPORT:
The Enterprise 3.0 release will enhance the core foundation to provide support
for perishables (with unlimited units if measure) and will move the supplier
relationship to the product and store level (to allow for local suppliers).
- - WEB STORE - industry leading and rapidly deployable scalable Internet
commerce server with integrated shipment and taxation services.
- - TRADE MANAGEMENT - streamlines and automates the logistics process,
providing immediate visibility into the pipeline for the status of products
as they move through the distribution cycle.
- - INVOICE MATCHING - streamlines the invoice matching process by
automatically confirming receipt of merchandise and alerting the retailer
to unmatched or partially matched invoices.
- - SALES AUDIT - processes transaction data from the Point-of-Sale and moves
the sales and customer basket data through a series of processes that
culminate in "clean" data.
- - VIRTUAL STORE MANAGEMENT WORKBENCH 1.0 - Store Merchandise Management, &
Store Inventory Management via a low cost of ownership thin-client
architecture.
- - WIRELESS STORE OPERATIONS - RF enabled store operations support for
inventory management, customer ordering, ticketing and price look-up.
NEXT PHASE DEVELOPMENT PLANS INCLUDE:
Core merchandizing enhancements will include support for complex negotiations
(including brackets, deals, & allowances), Sales Based Ordering (for
replenishment), Product Transformation (receipts and Bill of Materials),
Location and Item level application security, support for shelf-life constrained
environments (e.g. ordering algorithms, receipt and dispatch thresholds, etc.),
wastage, 24 hour stock takes, food service, and many more grocery specific
features
- - RANGE MANAGEMENT - maintain, control and report on range. Including the
creation, monitoring and ongoing maintenance of product ranges, and support
for core range and multiple range variations based on customer and product
attributes to support stores groupings by socio-economic/ demographic
criteria. Will also provide the ability to rank products within ranges to
allow for available footage by product category within store groupings.
- - PROMOTIONAL PLANNING - Promotional planning and forecasting tool with
promotional calendar and automatic purchase order generation.
- - COLLABORATIVE SUPPLY CHAIN MANAGEMENT - integrates the retailer with their
supply chain partners via the Internet to facilitate the sharing of a
common plan, forecast, and production schedule.
- - VIRTUAL STORE MANAGEMENT WORKBENCH 2.0 - Store Cash Management, Store Fuels
Management, & Integrated Labor Scheduling, T&A, & H/R.
- - WEB BASED EVENT MANAGEMENT - enables buyers and suppliers to agree delivery
schedules then track progress from order to delivery. Manages by exception,
alerting buyers and managers only when targets are not met. Buyers can
track and control the delivery of tens of thousands of new product lines
concurrently.
- - FUELS MANAGEMENT - fully integrated fuel site management solution including
streamlined downstream activities such as inventory management, sales,
accounting and taxation.
- --------------------------------------------------------------------------------
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2. DECISION SUPPORT SYSTEMS [Flow Chart]
Targeted
Marketing
Customer Workbench Marketing
Management Workbench
Workbench
Category Logistics
Management Workbench
Workbench
Customer Balanced
Service Scorecard
Workbench Workbench
Data Warehouse
& Data Marts
Store DSS
Workbench Performance
& Analysis
Promotional Reports
Effectiveness
Workbench
THE RETEK GROCERY SOLUTION CURRENTLY SUPPORTS:
Over 1200 retail Key performance indicators and 500 pre-configured reports.
- - COMPANY PERFORMANCE - A high level overview of company performance,
including a comparison of actual sales, markdown, stock, and intake against
forecast and plan and last year.
- - MERCHANDISE PERFORMANCE - key performance indicators made available for
detailed analysis of product performance, including product history, top
and bottom performers, top season performers, style size ratio, sales and
profitability, detailed performance, replenishment, margin erosion, trading
performance, and forecast stock.
- - BUSINESS PERFORMANCE - Daily and weekly detailed business performance
reports. Daily performance level includes sales performance, profit
performance, markdown analysis, and new lines. Reports on a weekly
performance include performance summary, performance detail, replenishment,
and full and reduced price analysis.
- - ORGANIZATION PERFORMANCE - Provides analysis at store, region, and area
level. Includes sales and stock movement, stock inquiry by store and SKU,
and stock inquiry by SKU and store.
- - VENDOR COMPLIANCE - Provides information used to evaluate vendors based on
sales, intake margin, and compliance figures. Includes vendor profit and
turnover, vendor sales analysis, vendor ranking, vendor compliance, payment
terms, replenishment, and volume.
- - STOCK PERFORMANCE - Covers the broad area of contracts and availability and
orders. Includes balance of contract, scheduled delivery, availability,
presentation stock, purchase order cancellations, order receipt
discrepancies, customer orders, inter-store transfers, stock counts, stock
cost and sell value, obsolete stock, and loss making stock
- - PRICE/MARKDOWN ANALYSIS - Enables low-level analysis in the areas of
markdown, price, and VAT history. Reports include markdown uplift, markdown
spread, average selling price, selling price analysis, price point
analysis, and VAT history.
- - PROMOTION ANALYSIS - Analysis by event, performance by scheme type, sales
uplift by event, and sales uplift by scheme type.
- - PROCUREMENT PERFORMANCE - Monitor and analysis the cost effectiveness and
efficiency of the business procurement process across vendors, products,
and locations.
- --------------------------------------------------------------------------------
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ENTERPRISE 3.0 (DEC 31 1998) WILL BE ENHANCED TO SUPPORT:
- - CUSTOMER MANAGEMENT WORKBENCH - understand your customer with support for
customer segmentation (Recency, Frequency, Monetary, Profitability,
clustering, and socio-demographics) and relationship management (loyalty
rewards and incentives, defection analysis, and lifetime customer
valuations). Uses patented clustering technology to understand and segment
customers based on real behavior not just socio and geo-demographics.
- - TARGETED MARKETING WORKBENCH - Provides marketers with analysis tool to
increase customer acquisitions and customer spending. Analysis will support
one-to-one marketing, cross and up-selling, mass customization, and
customer prospecting based on the retailer's best customers.
- - STORE MANAGER'S DSS WORKBENCH 1.0 - Empowers the store manager by
leveraging a thin-client architecture and providing a full suite of
decision support performance and analysis reports.
NEXT PHASE DEVELOPMENT PLANS INCLUDE:
Next generation decision support tools will embed the Retek Navigator and Visual
Process Flow technology as they start to drive access to all elements of the
enterprise.
The Retek Navigator supports user context sensitive business navigation, that
allows users to organize and customize the Retek Enterprise functions into
folders and locations. Features include, a customizable start page, web links
(to competitor sites or Intranet URLs), favorites folder, customizable toolbar,
and links to third party systems.
The Visual Process Flow transforms the Enterprise into a process driven business
application. An inbox of tasks will seamlessly link to multiple modules in the
Enterprise. Processes can be extended to include partners through collaboration
via an Extranet.
- - FUELS PERFORMANCE - Integration to Oracle Energy Downstream's data
warehouse which is based on an oil industry data model will provide support
for all required fuel and site performance and analysis.
- - STORE MANAGER'S DSS WORKBENCH 2.0 - Integrated fuels and merchandising
reporting and analysis will enable total site performance visibility.
Integrated labor and productivity analysis will also be included.
- - CATEGORY MANAGEMENT WORKBENCH - Allows the retailer to manage their
inventory from a customer perspective by managing objectives such as space
management, product range, and suggested price. Includes information on
competitor pricing, competitor product mix and new lines, market data and
detailed space information
- - MARKETING WORKBENCH - Builds on the targeted marketing workbench to include
integrated campaign management, communication tracking, complaint logging,
event-driven marketing, and customer satisfaction reporting.
- - BALANCED SCORECARD WORKBENCH - Balances external expectations - of
customers and shareholders - with internal capabilities. Supplements
traditional financial performance measures with operational measures in the
areas of customer satisfaction, internal business processes, and learning
and growth.
- - LOGISTICS WORKBENCH - Enables the management and optimization of supply
chain constraints while meeting customer demand and maintaining high
standards of service and availability.
- - PROMOTIONAL EFFECTIVENESS WORKBENCH - Monitor promotional effectiveness
with presentation of promotional effectiveness against expected forecast
and provide visibility to reasons for deviations from the norm e.g.
weather, other offers, short supply, and advertising type.
- - CUSTOMER SERVICE WORKBENCH - Provide access to customer information across
all points of contact with a customer (store, call center, customer service
desk). Includes the ability to track customer complaints at the item and
store level, which allows the retailer to increase product quality, improve
the in-store shopping experience, and to negotiate more effectively with
vendors.
- --------------------------------------------------------------------------------
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3. BUSINESS INTELLIGENCE SYSTEMS
[FLOW CHARTS]
Active Retail Causal Replenishment
Intelligence Forecasting Optimizer
Fraud Market Basket Customer
Prevention Analyzer Personalization
Customer Product Store
Profiler Profiler Profiler
Range Price Deal
Optimizer Optimizer Optimizer
Promotional Costing Logistics
Optimizer Optimizer Optimizer
THE RETEK GROCERY SOLUTION CURRENTLY SUPPORTS:
- - ACTIVE RETAIL INTELLIGENCE - Enterprise wide exception management and
closed loop toolkit. This combines automated discovery with the dynamic
creation of event monitors and intelligent rule decision trees to
encapsulate expert/corporate knowledge. This knowledge is used to monitor
data for key occurrences, recommend a course of action, and route the
summary to the appropriate user for resolution/notification.
- - REPLENISHMENT OPTIMIZER - Utilizing our expertise in simulation,
optimization and prediction we have developed a multi-phase program which
helps organizations set up and maintain efficient replenishment systems,
optimizing replenishment algorithm settings.
- - CREDIT CARD FRAUD PREVENTION - HNC's Falcon Retail, the neural
network-based system that examines transaction, cardholder, and merchant
data to detect a wide range of bankcard fraud.
- - INTEGRATED CAUSAL FORECASTING - Compliments the statistical forecasting
models with a causal engine that incorporates the implications of events
that drive your consumers form the normal selling cycle (e.g., promotions,
Easter, weather, etc).
ENTERPRISE 3.0 (DEC 31 1998) IS BEING ENHANCED TO SUPPORT:
- - CUSTOMER PROFILER - Learns customer behavior based on shopping behavior by
using patented neural net context vectoring technology.
- - STORE PROFILER - Performs store clustering and grade modeling by using
patented neural net context vectoring technology.
- - PRODUCT PROFILER - Understands relationships between products by developing
product affinities thorough patented neural net context vectoring
technology. Mode product affinities to determine substitutes, compliments,
traffic builders, destination products, and in-store shelf location
optimization.
- - CUSTOMER PERSONALIZATION - intelligent software that uses sophisticated new
techniques to maximize online and direct mail response rates and
selectively targets behavioral audiences.
- - MARKET BASKET ANALYZER - Analysis tool to better manage product categories
and space allocation according to each store's local pattern of demand to
improve sales and customer service. Powered by Retek's patented predictive
neural net clustering technology.
- --------------------------------------------------------------------------------
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NEXT PHASE DEVELOPMENT PLANS INCLUDE:
- - DEAL OPTIMIZER - Over riding discount `What If" Tool to model, confirm and
monitor deals progress. Will enable the modeling of Over Riding Discount
using previous sales and estimates of increased business. Business will be
able to monitor agreed ORD against actual performance during period of
agreement. Exception reporting, where under performing against plan.
- - PROMOTION OPTIMIZER - Ability to model and evaluate different promotion
scenarios, and perform what-if analysis. Ability to generate suggested
forecast based on historical performance. Ability to link victim lines to
promotional SKU and model detrimental effect on volume. Ability to model
overall category effect of proposed promotions (turnover, profit, margin,
volume). Will tie customer buying patterns to promotional activities
(market basket analysis on promotions.)
- - PRICE OPTIMIZER - Intelligent business rules can be configured on top of
competitor pricing, market data, margin plans, and the category strategies
to automatically trigger price changes as external or internal events
occur. It will also be possible to perform price elasticity modeling and to
assess the effectiveness of long term pricing strategies.
- - RANGE OPTIMIZER - Determine optimal categories and products for customer
base by location/grade. Includes neural net engine to score products and
categories based on free-form descriptions and attributes.
- - WEEKLY COSTING OPTIMIZER - Tool to model `what if' scenarios to model
changes to pricing, cost, supplier volume changes, and distribution changes
(e.g., number of stores stocking).
- - LOGISTICS OPTIMIZER - Enables the management and optimization of supply
chain constraints while meeting customer demand and maintaining high
standards of service and availability. "What if" capability to perform
optimal carrier and route selection will also be supported.
- --------------------------------------------------------------------------------
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SUBJECT TO ORACLE MANAGEMENT APPROVAL
EXHIBIT H
ISI MEMBER EDUCATION AND TRAINING FEES
<TABLE>
<CAPTION>
TECHNICAL TRAINING LENGTH PRICE
<S> <C> <C>
Course
1. Batch Technical Development Course (1 week) 5 days $1,750/person/week
2. Online (Forms) Technical Development Course (1 week) 5 days $1,750/person/week
3. Technical and Functional Perspectives (1 week) 5 days $3,500/person/week
FUNCTIONAL TRAINING
Course
RMS Fundamentals 5 days $1,750/person/week
</TABLE>
Page: 4
<PAGE> 124
SUBJECT TO ORACLE MANAGEMENT APPROVAL
AMENDMENT ONE
to the
INDUSTRY SOLUTIONS INITIATIVE TARGET MARKET ADDENDUM
to the
INDUSTRY SOLUTIONS INITIATIVE MASTER AGREEMENT
between
ORACLE CORPORATION
and
RETEK INFORMATION SYSTEMS
This document ("Amendment One") shall serve to amend the Industry Solutions
Initiative Target Market Addendum (the "TMA") to the Industry Solutions
Initiative Master Agreement between Oracle Corporation ("Oracle") and Retek
Information Systems ("ISI Member") dated September 10, 1998 (the "Agreement").
The parties agree to amend the TMA as follows:
1. In Section 10 of the TMA, in the fourth line, after the words "(d)[*]",
insert the words "and (e)[*]".
2. In Exhibit A to the TMA, add the following to the list of application
programs that will be included in the Oracle Retail Solution Suite under the
heading "Retek":
"Sales Audit
Invoice Matching
Store Operations"
3. The license fees for Customers for the programs listed in Section 2 above
shall be as agreed to by ISI Member and Oracle on a case by case basis with
the portion of such license fees to each of ISI Member and Oracle to be
based upon the sales model (as described in Section 4.1 of the Agreement)
in effect at the time when the applicable program is licensed.
Other than the modifications above, the TMA shall remain in full force and
effect.
The Effective Date of this Amendment One shall be November 30, 1998.
RETEK INFORMATION SYSTEMS ORACLE CORPORATION
By: [SIG] By: [SIG]
-------------------------- ---------------------------
Name: Gordon Masson Name: Charles P. Schneider
------------------------ ------------------------
Title: Senior Vice President Title: Senior Vice President
------------------------ ------------------------
[ * ] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 (No.
333-86841) of Retek Inc. of our report dated September 9, 1999, relating to the
combined financial statements of Retek Inc. and Retek Information Systems,
Inc., which appears in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
San Diego, California
November 16, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 (No.
333-86841) of Retek Inc. of our report dated September 9, 1999, relating to the
financial statements of Retek Logistics, Inc., which appears in such
Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
San Diego, California
November 16, 1999
